EDITOR NEWS FLASH: a German banker contact
informs that as a result of a high level meeting
in Germany
(not in the news), a decision has been made
for France to exit the Euro currency first. They are
ordered out. Regardless of whether Hollande
displaces Sarkozy for the president post, the
French have been instructed as to how business
will be conducted. No other information, like
whether France
will revert to the Franc currency and not risk
a severe Latin Euro devaluation after Germany
and Netherlands depart. My impression
is that Germany
will launch a new currency very soon. Perhaps
they wished for France to take some of the
attention and to begin the chaotic process.
The contact has consistently stated that France
would not be included from the new Nordic Euro,
an exlusive core group of Central European nations
that qualify by having a current account surplus.
French debt is too great, and likely to soon
expand much worse. He said France would become a ward
of the German state, with dictated policy and
direction. Bear in mind that Germany
owns of 90% of the French Govt debt. It remains
to be seen whether France will assume the lead
position among the PIGS, whose nations will
all go adrift. Rumors of a Latin Euro Central
Bank located in Marseilles
were once spun.

"When stocks lose their value, that
is a terrible thing. When homes lose their value,
that is a terrible thing. But when money loses
its value, that is the most terrible thing of
all." ~ Darryl Robert Schoon

"The USDollar is an instrument for hyper-inflation,
bond fraud, big bank largesse, and endless war.
Foreigners have begun to organize against the
abused corrupted global reserve currency. American
citizens seem oblivious to what is happening,
distracted easily by all manner of topics."
~ Jackass

"It is interesting to follow a counter-power
system growing very rapidly since it is not
easily intimidated. The alternative challenging
system has structures that are collaborative
and relational rather than hierarchical. The
hierarchical power structures do not stand a
chance to unhinge these new structures. It is
like trying to nail a jelly pudding to the wall
or trying to fight against a powerful cloud."
~ connected sassy gold banker (referring to
global anti-US$ revolt)

"Some people think the Federal Reserve
Banks are US government institutions. They are not. They
are private credit monopolies which prey upon
the people of the United States for the benefit
of themselves and their foreign and domestic
swindlers, the rich and predatory money lenders.
The sack of the United States by the Fed is the greatest crime
in history. Every effort has been made by the
Fed to conceal its powers, but the truth is
the Fed has usurped the government. It controls
everything here and it controls all our foreign
relations. It makes and breaks governments at
will." ~ Congressman Charles McFadden
(Chairman of House Banking and Currency Committee,
1932)

"The idea is in line with many interests
and economic exigencies in the world economy.
The Euro and Dollar are no longer seen as unquestionable
monopolies in the role of reserve currencies.
Clearly the world needs more reserve currencies."
~ Yaroslav Lissovolik (chief economist at
Deutsche Bank)

"Regardless of the fact that Quantitative
Easing has had no durable economic benefits,
and does little but to repeatedly lay fresh
wallpaper over the rotting edifice that is the
global banking system, the main effect of QE
has been to provide temporary support for the
most speculative corners of the financial market
after they have been pummeled." ~ John
Hussman (for a good review essay, CLICK HERE)

"We have found some evidence that at
the very long end of the yield curve, where
Operation Twist is concentrated, it may be not
just the stock of securities held by the Fed
but also the ongoing flow of purchases that
matters for yields." ~ Jan Hatzius
(from Goldman Sachs pointing out that it is
flow, not stock, that matters on the USFed balance
sheet)

"The allegory of Jaws can be applied
to liquidity addicted capital markets. Translated
simply, it means that it is irrelevant if the
Fed's balance sheet is $1 million, $1 trillion,
or $1000 quadrillion. A primacy of flow over
stock means that unless the Fed is actively
engaging in monetization at every given moment,
the impact from easing diminishes progressively,
ultimately approaching zero and subsequently
becoming negative!" ~ Tyler Durden
(the brilliant irrepressible soldier from Zero
Hedge)

"Decades of foolishness, debt accumulation,
and a materialistic feeding frenzy of delusion
have left the world broke and out of options.
And still our leaders accelerate the debt accumulation,
while encouraging the masses to carry on as
if nothing has changed since 2008. Sadly, millions
of lemmings want to believe they will not drown
in the sea of unpayable commitments. Truth is
a scarce resource on the planet today."
~ Jim Quinn (Burning Platform, for a good review
essay, CLICK HERE)

"My Economics college degree training
taught me jargon. The experience polluted my
mind with misinformed jibberish and grotesque
hubris about accepted heresy. It omitted very
important topics, with zero mention of the Gold
Standard, except that it failed. It prepared
me for working on international markets, taught
paper jockeying, and developed expertise in
the great bond game. I was forced to unlearn
what was learned in a great challenge, much
like a escaping a Flat Earth Society."
~ Rob Kirby (economics degree holder)

## MONETARY FRAGMENTS

◄$$$ A QUICK IRAN UPDATE. THE QUINTET OF NON-INDUSTRIALIZED
NATIONS SHOWS DEFIANCE.
EXPECT SOME RELEASE OF RESERVE CRUDE OIL TO
ALLEVIATE ANY SUPPLY PRESSURES. THE SANCTION
PARADE CONTINUES WITH MORE TARGETS. THE DECEPTION
AND MISDIRECTION IS ENORMOUS. IRAN
IS A TARGET FOR SELLING ITS CRUDE ON THE WORLD
MARKET OUTSIDE THE US$ FRAMEWORK, AND THUS ATTACK
THE PETRO-DOLLAR. IRAN IS ALSO A MAJOR COUNTERFEITER OF USDOLLARS.
JAPAN
HAS SHOWN TO BE A MAVERICK, INSURING IRANIAN
OIL SHIPMENTS. EXPECT NEW MARITIME INSURANCE
TO BLOSSOM IN ASIA AND
THE EAST. $$$

The BRICS nations of Brazil,
Russia,
India, and China,
together with South
Africa claim in defiance
that they are not bound by sanctions on Iran. They object to the unilateral
decisions made by the United States. These five organized nations regard
the dictum as threatening higher global oil
prices that could breed supply shortages. Nevertheless,
South Africa
has cut its dependence on buying oil from Iran, and is proactively
working to diversify its purchases. The criticism
is heard frequently that for sanctions to have
meaning and legitimacy, the call must come from
the UN Security Council, something the megalomaniac
US leaders find distasteful.

Crude oil supply is hindered by obstructed
Iranian sales. The Saudis cannot compensate
for the cutbacks, since they have almost nothing
in spare capacity. For years they have lied.
The

United States,
United Kingdom,
and France are considering release of strategic oil
reserves. A coordinated emergency release of
oil stocks is early in the planning. The French
ministry claims that the US had requested a coordinated release. The group
awaits analysis by the IEA. Maria van der Hoeven,
head of the IEA, had earlier concluded that
a coordinated IEA release is not warranted due
to the lack of significant supply disruption
on world oil markets. That seems an obtuse position.
She advised countries to choose by themselves
to release stocks after consultation with the
agency.

The US Senate has some elements that object
to Iran sanctions without a declaration
of war, which has not been done. Thus the sanctions
are an aggressive pursuit of the President and
USDept Treasury. The Senate failed to pass a
bill on increased sanctions targeting foreign
banks that handle transactions for Iran's
national oil and tanker companies. It also included
several measures aimed to close loopholes in
existing sanctions. The USGovt added an Iranian
cargo airline, and a Nigerian trading firm to
its Iran sanctions blacklist. Supposedly thye had
conspired to funnel weapons to Syria
and Africa disguised as
humanitarian aid and building materials. Doubt
the accuracy of that accusation. No independent
agency verified the charge. Nothing was mentioned
in the Congress recently about the USMilitary
flooding the Iranian borders with narcotics
from Afghanistan, a longstanding
practice. Some topics are taboo.

Fully 95% percent of the global tankers will
be able to carry Iranian oil only if willing
to conduct shipment without insurance coverage.
That includes collisions, fires, and oil spills.
The insurers are affected by a European Union
embargo that takes effect July 1st. Besides
blocking SWIFT transactions to Iran,
the Western financial system appears to have
deployed maritime insurance as a weapon of means
to blockade Iran.
Note that China,
Japan, and India are looking at providing their own sovereign
coverage on insurance. The most recent to announce
insurance underwriting was Japan.
The West is forcing the East to create an alternative
to Lloyds of London as well as an alternative
to the SWIFT system. They will likely do exactly
that. In the process, the United
States and United
Kingdom will be isolated.
Europe will be divided
and eventually (my belief) side with the East
in an act of practicality and defiance. Perhaps
Shanghai or Mumbai will
replace London as the insurance capital of the world. Besides,
Lloyds is wrecked as a company, having been
forced to seek UKGovt aid with crutches. The
West has created another investment area for
the Chinese to spend their USTreasury Bonds
as a platform foundation in promising new business.
See the Tehran Times article (CLICK HERE).

◄$$$ THE TURKMENISTAN
ANGLE HAS ENABLED IRAN
TO SHIP SOME CRUDE OIL VIA SWAPS WITH ITS FRIENDLY
NEIGHBOR. THEY HAVE ACCESS TO THE IMPORTANT
B.T.C. OIL PIPELINE. DETAILS ARE SKETCHY AND
WILL NOT YET BE REPORTED. $$$

◄$$$ RUSSIA,
IRAN,
AND GERMANY FIGURE IN A POTENTIAL CHESS MOVE.

THE THEORY DESERVES MERIT. THE MOTIVE IS TO
DRIVE GERMANY INTO RUSSIA'S ARMS AND THUS HELP ADD STRENGTH TO A
GROWING PARTNERSHIP. THEIR NEW COLLABORATION
WILL BECOME A KEY FOUNDATION TO THE NEXT CHAPTER
OF EUROPE. RUSSIA'S GAIN IS THE AMERICAN
LOSS. $$$

For five years, the Hat Trick Letter has described
Europe as the grand prize, taught by friend
JohnM in Zurich. How true! Germany
is making important ties with Russia
for developing trade and reliable energy supply.
In keeping, Russia wins Europe, while the United States will be pushed aside in Europe. The US has horrendous strategists, or else has no
more cards to play. The Weatherman is a Hat
Trick Letter subscriber with a solid argument,
which the Jackass will expound upon. He follows
the path of events. Spain
had its oil shut off from Iran.
Their government bonds went crazy. Then Germany
and Italy
were threatened by Iran
to have their oil shut off. That effectively
rattled the EU cages enough for the continent
to push back on the United States. The US backed off from the SWIFT
bank sanctions aimed at the European nations,
a serious overstep breach. Two elements
stick out. Iran
is at Russia's
beck & call from the ample arms deals, such
as the Sunburn missiles that guard the Iranian
coast of the Persian Gulf.
Second, the sequence is how Russia
are going to play hero to Italy.

Russia already owns a significant stake
in Italian oil companies. The Italian Govt
Bond yields are driven up. Then Russia comes riding in on horses like Cossacks
to save the day. The public outcry generated
creates a path for Germany to seek and locate
crude oil elsewhere. Aha! They found Russia, bringing closer ties between important
chess players. So Iran serves as a key piece on the chess board
to enable a delayed check from the German column
in collusion with the Russian chess master Vladimir
Putin. With Peak Oil still threatening ample
unlimited supply, the future Germany-Russia
relationship will be left to do deals and trade
huge crude oil volume. The United
States has its hands full
with the cooperative footwork among Russia,
Germany, and Japan. Nevermind China, the obvious antagonist
and building foe.

◄$$$ INDIA'S CENTRAL BANK CUT RATES BY A HEFTY 50 BASIS
POINTS IN RESPONSE TO A LAGGING ECONOMY. THE
ENTIRE GLOBAL ECONOMY IS SLOWING, PULLED DOWN
BY THE USFED BOND MONETIZATION PURCHASES AND
UNIVERSAL 0% RATE. THE KILLED OR RETIRED CAPITAL
CONCEPT ACTS LIKE A WRECKING BALL, NOT NOTICED
BY WESTERN ECONOMISTS. $$$

The Reserve Bank of India's (RBI) moved on April 17th to cut key official
rates for the first time in three years, this
time by an emphatic 50 basis points. They move
is intended to provide much needed relief to
consumers and bankers. Aditya Puri from HDFC
Bank MD said both deposit rates and lending
rates will come down, but not right away. The
lead banks promised that interest rates would
go down, but not too soon. They must exploit
for profit briefly. Pratip Chaudhuri is chairman
of the State Bank of India. He said, "Of
course, the rate cuts will be passed on. Let
me admit, after the last Cash Reserve Ratio
cut of 75 basis points, the transmission has
not happened fully because that came in the
month of March. So, we were just slightly watchful
of the liquidity situation." He expected
that SBI might make a comprehensive rate cut
but not across the board, only in particular
segments. See the Times of India article (CLICK
HERE).

◄$$$ UNITED STATES LEADS THE WORLD IN
CORPORATE TAXATION, BUT WONDERS WHY BUSINESS
CANNOT GROW ON THE DOMESTIC FRONT. INDUSTRY
HAS NOT RETURNED TO AMERICAN
SHORES. THINK DEAF
DUMB AND BLIND. $$$

America is used to lead the world in business
formation and industrial diversity, with innovation
and work paying off handsomely. The US
manufacturing sector contains a mere nine million
jobs. A generation ago, it was triple that figure.
The US
currently leads the world in demanding taxes
from companies. On April 1st, Uncle Sam
became the fool. The US
has garnered the dubious distinction of being
the industrialized nation with the highest corporate
tax rates. Japan just reduced their tax rates, coming to
their senses. The Tokyo
leaders cut corporate taxes in Japan
down to 38%, rendering America's
39.2% rate the world's highest. In fact,
it stands far above the average of 25.4% for
developed nations, according to the Organization
for Economic Cooperation and Development. The
US leaders mindlessly wonder why job growth cannot
be revived. It is because they inhibit it, like
clueless clutzes. See the Yahoo Finance article
(CLICK HERE).
Worse, the USGovt still has tax breaks for corporations
that expand or have headquarters overseas. They
seem ignorant to the reality that the US must encourage the return of industry to US shores, a major
source of legitimate wealth. It is absent. The
nation is in love with asset inflation, a truly
lazy solution that has a perfect track record
of failure and widespread ruin. The reams of
USGovt regulations also inhibit business, as
does the prohibitive Obama Health Care.

## USDOLLAR
END GAME

◄$$$ THE USDOLLAR END GAME WAR IS IN
PROGRESS, AS MANY FACTORS ARE ALIGNED. HOWEVER,
NEUTRALIZATION ELEMENTS ARE IN PLACE. THE UNITED
STATES WILL BE FORCED TO WALK THE GAUNTLET INTO
THE THIRD WORLD MARRED BY INFLATION AND SHORTAGE.
MANY ARE THE WEAPONS POINTED AT THE UNITED STATES
IN CONSEQUENT REACTION TO STRAINED POLICY. $$$

Ron Hera does excellent work. He laid out the
many high risk factors at work with the Iran
threat and the resulting sanctions in reaction.
My opinion for over seven years has been that
the threat from Iran
is highly exaggerated, their nuclear capability
is primitive, and the weapon potential is almost
insignificant. My expectation is of continued
standoff and no wider war, even if the USDollar
is rejected from the world stage. The United States is being forced
to walk a gauntlet into a very ugly desolate
place, many of its weapons already neutralized.
The bank weapon is the final straw. Hera
puts high odds on a war outcome as the USDollar
fades into the dustbin of history, saying "Given
the history of the US dollar, it seems likely
that an eventual end of the US dollar's reign
as the world reserve currency will be marked
by war." The Jackass disagrees,
not based upon empty hope toward humankind.
Rather, Russia and China have already made a large imprint like cops
to ensure that a hot war does not break out.
Also, Israel has never been more
isolated, with only loose leash attached to
the USMilitary. The former (the ally) are contending
with an unprecedented degree of lost command
and internal problems. Russia
might be permitting more violence internal to
Syria,
but it serves as substitute perhaps for a wider
war centered on Iran. China is taking action also, having neutralized
one USNavy warship near the Persian
Gulf with an electro magnetic pulse usage. This
event display was not reported in the lapdog
Western press. Also, Iran
has in place a scattered array of Sunburn missiles
from Russian origin ready to inflict staggering
damage to the USNaval fleet in hours. The standoff
is easy to see if the US
press slant is put aside.

The pressures so far are to lift the crude
oil price, to isolate the US
further, and to motivate the usage of alternatives
to the USDollar in global trade even beyond
the crude oil transactions. The Iran
sanctions hide the true motive by the USGovt
and USMilitary to confront Iran in at least a war of
words. It is to protect and preserve the singlemost
tool of financial tyranny in modern history,
the USDollar. A parallel exists with acts
from the Iraq
War prelude, since Saddam Hussein sold crude
oil in Euro terms for two full years before
being canceled. It was not always this way,
but in the last 15 years, without question the
global reserve currency has been converted into
a tool of fascism, extortion, theft, counterfeit,
and financed aggression. In other words, hegemony.
The United
States has gradually transformed
into the center of the global Axis of Fascism,
while at the same time grabbed the global monopoly
on narcotics through the direct bold abuse of
USMilitary bases. Airport abuse is the flick
of the public's nose in defiance. Water bottles
used to be a common method to transport white
diamonds. The shoe removal is for distraction
and comedy. In my view, the most damaging policy
so far has been the SWIFT tool used as a weapon.
Its backfire has been a colossal event of failure,
which has galvanized resistance in the rest
of the world, including to some extent the US allies in Europe. See the
Financial Sense article entitled "The
War at the End of the Dollar" by Ron
Hera (CLICK HERE).

The big miss here is the influence of Russia and China, almost totally overlooked by Hera for its
stabilizing effects. The two superpowers serve
to obstruct the aggressive US
initiatives. He falls victim to the US media propaganda on the nuclear threat. It
is somewhat low, while the USDollar threat is
exceptionally high. What Hera writes is true
enough, but he does not adequately lay out the
countervailing forces. The United
States, its government,
its military, and its economy, will be forced
to adapt to a magnificent decline due to the
removal of the USDollar from its dominant post.
The government in WashingtonDC will face debt
default. The defense establishment will splinter
into a new Odessa Corp. The economy will endure
strong price inflation and broad shortages in
an accelerated deterioration. The leaders (political,
banking, and military) will share motive to
strike at the foe. But the foe is gradually
being identified as the entire world, even parts
of the shrinking group of ally nations. If the
US strikes, it will shoot itself in the foot,
leg, groin, gut, and wallet, then later in the
head.

A rising crude oil price is a global vote against
war by means of the economic lash of a whip.
Hera provided some key details on the standoff
itself. He wrote, "Demand from emerging
economies, particularly China, is placing steady upward pressure on the
price of crude oil. Higher oil prices resulting
from a combination of a weaker US dollar and
increased global demand threaten to push the
US
economy back into recession. Setting aside flat
to declining supplies of sweet light crude oil
(Peak Oil), the fact that the price of gold
has risen roughly 500% in a single decade suggests
much higher oil prices in the future. Iran,
which is the world's third largest oil exporter
and a major supplier of oil to China, lies outside
of US
control. Iran refuses to sell oil for US
dollars, partly as a consequence of the
overthrow of the democratically elected government
of Iran in 1953, orchestrated by the US Central
Intelligence Agency, and partly as a consequence
of current US policies in the Middle East.

In March of 2012, the United States unilaterally removed Iran from the Society for
Worldwide Interbank Financial Telecommunication
(SWIFT) system, effectively cutting it off from
world commerce. However, wielding
the US dollar's world reserve currency status
as a blunt instrument could be counter-productive
in the current international climate. If the
US dollar were to lose its world reserve currency
status over a short period of time, a US
sovereign debt crisis would be certain and a
catastrophic collapse of the US dollar, i.e.,
hyperinflation, would be possible.

Having taken a decision to act unilaterally
against Iran,
the United
States may be forced to
resort to more extreme measures if the world
reserve currency status of the US dollar begins
to break down. Of course, the US does not control the oil trade solely through
financial means. With Israel
as a close ally, Iraq
and Afghanistan occupied by US forces, close ties with
Turkey,
Saudi Arabia, Kuwait,
Qatar,
and other Middle Eastern countries, Iran
is surrounded by more than 40 US
Military installations. A successful invasion
of Iran would eliminate the largest non-US$ oil exporter,
delaying the breakdown of the US dollar's status
as the world reserve currency. Although
a war with Iran would cause a spike in oil prices,
US control of Iran's oil would increase the
supply of oil available for purchase in US dollars,
which would bring the US dollar price of oil
down and enhance the ability of the US to manage
the price of oil to meet the needs of the US
economy. Controlling a major supplier of crude
oil to China and India
would give the United
States additional leverage
to support the US dollar and US debt, as well as a means of influencing the
policies and economic growth of the two largest
nations. The option of invasion, however, may
be time limited. If Iran
were to eventually obtain nuclear weapons, the
risks involved in a United States invasion
would escalate." Hera does not notice
that China
will work to obstruct US initiatives that would
result in crude oil cuttoff to China from Iran. He has not noticed that China already has given a
demonstration.

◄$$$ USGOVT DEBT IS GROWING 4X FASTER
THAN THE USECONOMY, EVEN IN THE DOCTORED DATA
SCENARIO. THE REALITY IS MUCH WORSE, AS THE
DEBT GROWS EXPONENTIALLY WHILE THE RECESSION
TAKES DEEP ROOT. ACTUAL DEBT GROWS FASTER THAN
REPORTED. ACTUAL GROWTH IS NEGATIVE AND STUCK,
SURELY NOT REPORTED. THE RECESSION IS IN ITS
FIFTH YEAR, PULLED DOWN BY THE HOUSING DECLINE,
THE BANK RUIN, BOND FRAUD, AND WAR. NO BASIS
FOR GROWTH EXISTS. $$$

Give benefit to the propaganda story on recovery
for a minute, but only a minute. The USGovt
debt is growing at a rate four times faster
than the USEconomy as measured by its official
GDP. This is an unsustainable situation.
It is made much worse by the fact that the debt
is much greater than reported, and the economic
growth is actually a recession stuck in reverse.
The debt to growth factor is an order of magnitude
worse than what is common presently and observed.
Factor in the hidden costs of wars and security
agency black ops and the domestic black holes
(Fannie, AIG) and the coverage of big US
bank derivative craters. The debt is much worse
when JPMorgan and other Wall Street derivative
coverage is factored in, possibly into the multiple
$trillions. Then consider the USEconomy and
its Gross Domestic Product. In reality (where
people and business live), the GDP is in a minus
3% to 5% steady decline, never having recovered
or lifted itself from the mire of the Lehman
failure. The removal of US
industry to Asia, the climax being to China, ensures no recovery. The US can find no traction for
recovery without a critical mass of industry,
period. When factoring in the actual price inflation
adjustment, with the CPI ranging from 8% to
11% for the last four or five years, the GDP
is seen without rose colored glasses to be stuck
in a powerful recession of something like minus
4%. This is utterly basis. In fact, the Shadow
Govt Statistics folks show that even the nominal
GDP without adjustments tends to be falling
from one quarter versus the same quarter a year
ago.

The nation is heading to a USGovt debt default,
as forecasted in 2008 by the Jackass. All in
time. The establishment of a new Nordic Euro
and the new Chinese Dollar will torpedo the
US, and accelerate the decline since it will isolate
the USDollar and USEconomy further, subjecting
it to more price inflation and more widespread
shortages. The defiant US will try to avoid
bidding up new competing global currencies.
The broad wrecking ball is the USFed monetary
policy itself. The 0% official rate misprices
money, ensures a rising cost structure in response,
and ultimately kills capital. As profits
slowly fade away in a relentless squeeze, working
capital is retired and liquidated. The response
to 0% is not from speculation but rather real
market forces. The real inflation adjusted rate
of interest has been negative since 2008. Greenspan
warned about an installed ultra-low official
rate lasting more than six to nine months. Not
only has Bernanke been forced to suspend monetary
policy, but he has made the 0% rate a fixture
in permanent policy. The national debt management
is being stretched to the breaking point.

President Obama has an effective distraction
underway, regarding tax measures on the wealthy.
It is often called the Buffet Rule plan. He
enjoys the speech from the pulpit like a populist
demagogue, proclaiming the path to the 21st
Century for the United States is a fair tax levied on the successful.
He is way off base. Redistributed wealth
is no solution, certainly no panacea, since
it is the socialist way. The best path is to
build and grow the entire tax base, not refine
the tools to distribute the shrinking pie that
leaders oversee through dimwitted policy.
The path to the future prosperity is made from
low tax on corporations (US is the highest),
from removal of regulations (US is worst), from
solid education (US lags badly), from return
of factories (US shipped them to Asia), from
reasonable social safety net (US has a huge
net), and from toning down the military spending
(US is higher than rest of world combined).
These are the earmarks of capitalism, a lost
science in the United
States. Sorry, but tax
on the rich is the distraction, even a trap
door into a further slide, not the door to the
future. And the secret to a stronger USEconomy
is not finding a way to put money into people's
pockets by any means. It is from efficient credit
engines, effective capital formation, innovative
ideas (like patents), job creation, and hiring
of qualified workers that produces legitimate
income. American leaders have no concept
of capitalism anymore, as they lean too
heavily on redistribution, inflation, aggression,
and fraud.

The constant theme is propaganda and deception
to hide a faltering economy, one not improving
at all. Recall the nonsense about Green Shoots,
an extension of the scorched earth imagery.
The current quagmire of a listless and regressing
USEconomy would surely not be called Green Shoots
II. Look for a recycle of propaganda themes.
Recall the nonsense about Exit Strategy, when
the USFed is stuck at 0% and embarrassed. Lately
Bernanke proclaims the wisdom of the stuck official
rate. The clueless bank analysts are talking
again about raising rates. They are sell-side
experts on the financial markets and justifying
a crippled USEconomy though. Let's see how they
label it, surely not Exit Strategy II. The Home
Loan Modification plans have no altered themes,
just the straight constant empty promise of
aid, coupled with absurdly minimal volume. All
the commonly bandied themes are false. It is
pure Orwellian in stench. Lies told boldly,
and if bold to the extreme with an official
marquee emphasis, it becomes like Goebbels.

The principal theme that must be emphasized
and acted upon, but hardly ever is, centers
in my view on the urgent need to move away
from finance as wealth output and back to industry.
The nation has gone down the tubes with the
outsourcing of industry to Asia
that began in the 1980 decade and hit climax
early in the 2000 decade, with disastrous consequences
still not properly recognized. The talk of
building jobs is dishonest, incompetent, and
replete with pedagoguery as long as the topic
of returning factories to US shores is avoided.
That would bring focus to the decisions made
in the past that actually continue. See Cisco
Systems and IBM on outsourcing. The fact that
factories are dirty must be dealt with intelligently.
Nothing wrong with factory dirt, which can be
managed. Humans eat a varied diet including
proteins, with dirty effluent as well, something
dealt with intelligently in bathrooms, water
closets, sewer systems, and sewage treatment
plants, the biggest of which is Fannie Mae.
The United States must remove
itself from the notion that finance creates
wealth. It should be a utility, a smart utility,
to aid in business development and capital formation,
not speculation and not asset inflation.

◄$$$ A MAJOR CULPRIT FOR USGOVT DEBT
IS MILITARY SPENDING. IT IS NO LONGER DEFENSE.
THE US-MILITARY SPENDS MORE THAN THE REST OF
THE WORLD COMBINED, BUT NOT IN GLOBAL SERVICE.
ITS COST IS A GRAND BURDEN AND DEFICIT AGENT.
THE BURDEN IS HUGE WHILE THE BENEFIT IS ABSENT.
MILITARY CONTRACTORS ARE THE ONLY BENEFICIARIES,
ALONG WITH AGENCY NARCOTICS PROFITEERING. THE
WORLDWIDE RESPONSE IS NEGATIVE TO THE AGGRESSION,
SEEN INCREASINGLY SEEN AS DEFENDING THE USDOLLAR
REGIME. THE ENTIRE WORLD WATCHES AND REACTS,
THUS ADDING MOMENTUM TO THE ANTI-US$ REVOLT.
$$$

The United
States accounts for 45.7%
of total military spending by the 171 governments
and territories of the entire world. But, like
with federal debt and economic growth, the reality
is worse then the commonly seen reports. Do
not overlook the ancillary costs. Add in all
of the non-Defense agency costs, to arrive at
a much higher figure that approaches $1 trillion
annually. The USMilitary retirement spending
adds $20 billion. Veterans Admin aid for prosthetic
legs and arms, and drugs for post trauma adds
more cost. Tack on military aid to countries
like Israel
and Pakistan,
where the drone aircraft are killing civilians
by the thousands, a certain negative payback.
Add in secret black operations costs by the
security agencies, whose specialty in smuggling
seems to start wars (see Africa and Congo),
whose activities result in gold hoard confiscation
(see Libya), and more. Add in Homeland Security
costs which beef up airport abuse, border rudeness,
and more. Add the budget for countless worthless
projects in the USDept Energy, in addition to
their Solyndra fiasco on green energy, more
negative results.

If one combines the annual interest on the
national debt, the total US defense related spending
pushes up to $1 trillion. Currently spending
by the federal government accounts for 24% of
GDP. In 2001, just eleven years ago, it accounted
for 18% only. The USGovt exempts itself, unlike
the nations of Southern
Europe, from austerity measures, reasoning openly
that it would move the USEconomy in the wrong
direction. The constant banter about terrorism
enables the outsized high US Defense budget.
The fiscal and debt situation in the United
States is ruining the USDollar
in a grand insolvency, while the central bank
leads a grand debasement chapter. The result
is a grand encouragement for the entire world
to take defensive measures. Thus the anti-USDollar
revolt.

The USGovt keeps many counter-productive policies
in place. Consider that the United
States has world's highest
corporate tax rate at 39.5%, when central government,
regional and local taxes are factored in. Countries
like China
continue to shun the purchase of USTreasurys.
In 2009, the total foreign purchases of USGovt
debt amounted to 6% of GDP. Here is the shocker
of isolation, a response of indignation to USFed
hyper monetary inflation. The foreign USGovt
debt purchase has fallen by over 80% of overall
USTreasury sales. The USFed picks up the
entire slack in debt monetization. The US Federal
Reserve bought 61% of all government debt issued
by the USDept Treasury in 2011. The debt
monetization, otherwise called printing money
to buy your own debt, is the most grievous devastating
disastrous inflationary act a country can do.
It is highly destructive to working capital,
and the cause of rising cost structure, later
possibly a significant price inflation event.
The USFed is currently buying over 80% of the
USGovt debt. See the Market Oracle article entitled
"Sovereign Debt, Gold and Okun's Law"
by Richard Mills (CLICK HERE).

◄$$$ CURRENCY PREPARATIONS FOR D-MARK
HAVE BEEN IN PROGRESS FOR SOME TIME. THE STAGE
IS SET ON THE GIGANTIC RESCUE FUND FOR THE GERMAN
BANKS, CERTAIN TO FACE MASSIVE LOSSES FROM THE
CRATERING P.I.G.S. BONDS. THE CLEAR CLUE ON
SOMETHING BREWING ON THE CURRENCY REFORM FRONT
IS THE STOCKPILE OF CURRENCY WITHOUT MARKINGS
ON PLAIN QUALITY PAPER. THE EURO CENTRAL BANK
HAS SURPRSINGLY LITTLE CONTROL OVER BANKNOTE
PRODUCTION. THE TRIGGER LIES IN SPAIN,
NOT GREECE. $$$

Two glaring signals within Germany. Plain banknote paper is being stockpiled,
and the Bundesdruckerei printing firm was renationalized.Germany
in the past few months has built up a gigantic
bank rescue fund, reported in recent past Hat
Trick Letter reports. A ripe $1 trillion at
least in bank losses is anticipated. They are
ready to aid the big banks after departing the
Euro Monetary Union, which will inflict powerful
losses on bank balance sheets from the sovereign
bonds left in the Latin Euro hands. They will
depreciate from both lost confidence (bond principal,
rising yield), and currency decline (Latin Euro
bagholder with toxic remnant core). Truly dangerous
but intriguing times in Germany.
This story has been verified by my German banker
source. Credit goes to the Slog for details,
the same source as previous cutting edge reports.
Follow the trail of key events like big bread
crumbs, leading to the conclusion of a new German
currency initiative. Berlin
is sitting on a huge stock of unprinted banknote
quality paper, and has reduced the amount of
its existing Euros in circulation. The Nordic
Euro is nigh, or call it the Euro Mark, my preference
since it has a traditional German imprint of
integrity. Consider the many indications of
imminent new currency launch.

The European Union system of banknote printing
is easy to abuse. The Bank of Greece was caught
in unauthorized printing of Euros.

Germany
ordered a large consignment of plain banknote
paper from its main supplier in 2010. They
have the quality paper in readiness to convert
to another currency, or to revert to the Mark.
A substantial proportion of the plain banknote
paper was ordered by the BundesRepublik.

Germany
printed fewer Euros than normal, when in the
EuroZone the printing of Euros generally was
on the increase. The main banknote printer
Giesecke & Devrient in its annual report
revealed its Euro printing division saw a
dip in sales during 2010, when the number
of EuroNotes in circulation went up by EUR
7 billion, a 16% drop. The EU Economy grew
by 4%.

Germany
has led the circulation growth every year
since original Euro launch. It has the lowest
credit card and bank card usage rates in the
EU, and easily the highest consumption of
cash for transactions.

The other Berlin
government banknote supplier Bundesdruckerei
was quietly nationalized by early 2009, in
order to protect security policy interests.
It has expanded into multiple security related
fields after being privatized in 2000. Even
more intrigue, since Giesicke & Devrient
complained to the media that it had made a
bid for Bundesdruckerei at a very fair price.
The German Govt quashed the offer, in order
to secure control of the Bundesdruckerei.

The entire EuroNote production market and
related stories demonstrate how little real
control the ECB has daily basis. It prints only
8% of all the banknotes in circulation.
Over 80% of banknotes are produced by the EU
members via state print suppliers, often dedicated
controlled nationalized firms. No country in
the EU prints money on contract for any other
member nation. Each output has a different serial
prefix to identify it, making the task simple
to detect unauthorized printing. Obviously,
Mario Draghi at the Euro Central Bank is aware
that the Bank of Greece has been printing without
permission, but he has chosen to do nothing
in response. From an opposite perspective, the
EuroCB answers to nobody, a mini-monetary kingdom.
When the European Parliament requested the issuance
of 1 and 2 Euro currency notes, the ECB under
Trichet ignored the motion. Popular demands
and priorities mean zippo. Follow further events.
In Germany the Christian Democratic
Union party voted to allow European member states
to quit the currency area, endorsing a pathway
opposed under Euro Monetary Union rules. The
statement of intent (not approved law) reveals
the need for the option to depart the Euro if
Berlin
leaders feel compelled to act. Like fine engineers,
Germany has every angle covered.

Another Slog item. The German banking community
has told Chancellor Angela Merkel, "Either
Greece must be amputated,
or we must leave the EuroZone." Look
for both directions to be taken, amputation
and departure. The decision will be made obvious
for a German exit solution in a post-election
repudiation of the Brussels Accord in Greece, alongside collapse in Spain and Portugal,
possibly France
also.

The hot button is Spain
in my view, to force change and open the door
to chaos. Right wing fanatics are having
their way in Madrid
during volatile pressured times that require
decisions on reform and change. Some extremely
harsh cuts in health, education, and social
services have ignited a public uproar and backlash.
Journalist Pepe Escobar wrote, "It is
a counter-reformation that erases with a single
stroke many labor and union rights acquired
by the working class in decades and generations.
The catalogue of Spain's austerity is the usual catalogue of neoliberalism
in trouble. A previous nominally socialist and
now an ultra-conservative government have furiously
decimated unemployment, retirement, and severance
benefits. It has turned virtually all labor
contracts into precariousness hell. It has steeply
raised fees for education and transportation,
vastly militarized the police, and spent fortunes
to bail out banks." Sounds eerily like
the United States and its embrace of the Fascist Business
Model. See the CounterPunch article (CLICK HERE).

Gonzalo Lira pitched in a perspective on Spain. He is afforded a close
view from his current Paris
residence. He wrote, "The more you look
at the situation cold-bloodedly, the more obvious
it is that a EuroZone exit and devaluation is
the absolutely best thing for the long term
health of the Spanish Economy. It remains to
be seen if the Spanish leadership will have
the cojones to do what has to be done, to save
the Spanish economy: Exit the Eurozone, devalue,
and rebuild." Lira makes an excellent
comparison to the Corralito phenomenon in Argentina
and what might be expected in Spain.
Tens of thousand of citizens in Buenos
Aires lost most of their life savings. See the
Gonzalo Lira articles (CLICK HERE
and HERE).

◄$$$ EXPANDED EMPOWERED ROBUST EURASIA
LIES AT THE DOORSTEP. THE WESTERN ANALYSTS AND
PRESS ARE TOTALLY OBTUSE TO DEVELOPMENTS IN
CENTRAL EUROPE. GERMANY IS FORGING AN ALLIANCE
WITH THE EAST, LED BY RUSSIA
AND CHINA.
THE ODD MAN OUT IN EUROPE WILL BE FRANCE, AN IMPORTANT HISTORICAL LINK IN THE US/ANGLO
CHAIN. THE POWER AND WEALTH AND COMMERCE AND
RULES WILL SHIFT EAST. $$$

To my excellent astute reliable German banker
source, the Jackass shared a viewpoint regarding
the imminent changes in Germany vis-a-vis the Euro
currency regime. My comment was that loosely
and inferentially, the new currency for Germany will be accepted for Russian trade, and
Chinese trade, and investment with both nations.
An important factor dictates that a new strong
currency should not run alone, vulnerable to
becoming a victim of its own success due to
export trade impact from a rising exchange rate.
My thought is that simultaneously, expect a
mix on the new currency front between what has
been formulated as the Nordic Euro, crossed
with the gold-backed Chinese Yuan. At least
in the immediate the Chinese Yuan will be fully
convertible. But talk of future gold backing
will fortify it and take slack off the new Nordic
Euro, or new Euro Mark, whatever Germany decides to call it.
Add to that the possibility that a Russian Ruble
currency could have some hint of gold backing
or energy commodity backing, like a given ratio
of crude oil and natural gas.

The kicker to add to the trifecta of new currencies
could be, a long shot admittedly, a gold-backed
Gulf Dinar. For seven years the Gulf Coop nations
have been threatening its launch, dithering
and relenting under US/Anglo pressure. But
with a new Russian-Chinese protector in agreement
for the Persian Gulf region, the Saudis might
lead the charge and agree to a gold-backed Gulf
Dinar, since given protective cover provided
in the financial arena by Germany, China, and
maybe Russia. A four-way new currency launch
would mitigate the risk to Germany,
and strengthen the Eastern Alliance, a primary
initiative for the development of Eurasia.
The time is perfect for the Arabs to grow a
pair and show some guts. The United East, together
with Central Europe attached by cable lines, would represent a lethal blow
to the US/Anglo dominance. The USDollar and
British Pound would have to bid up the Euro
Mark, the Ruble, the Yuan, and the Dinar in
order to purchase crude oil and a vast array
of commodities. The new launches would not be
marginal if done together, and would render
the US$ & British Pound isolated, outside looking
in.

The German banker source responded. He has
yet to hear or read my full four-prong new currency
phalanx driven into the US/Anglo fortress. It
is admittedly idealistic and the basis of a
long-term strategy perhaps. But he had been
exposed to my view of simultaneous integration
of Russia and China with the new Euro Mark currency usage. He
said, "In principle you have a point.
The post Euro currency will have a new alignment
in the currency regime with emphasis given to
successful economies that run a trade surplus.
The Russia
/ China
trade settlement is not an issue whatsoever,
since there is a very robust and trusted basis
to do business and getting things done.
Once Europe can shake off the Americans and British, the French will be easy
to ring fence. All will come together quite
rapidly. German engineering and Russian resources
combined with the emerging Chinese market is
not rocket science to figure out where it will
lead to. The result will emerge as Eurasia.
There are mega rail grid projects on the drawing
board for high speed passenger and cargo trains,
all ending in Germany
and the Far East. It is pretty much like with the Russian pipelines. They all
end in Germany,
the industrial heart of Europe.

Interesting to note that Ireland
is moving very close to Germany
since they totally distrust the British. From
a historic point of view it is interesting to
note that the Irish refused to be part of WWII
and refused the Americans to use any of their
ports or airfields. Later they refused to join
NATO. The Irish and Northern Germans are Celts
and hence stick together, come hell or high
water. And that in spite of them being predominantly
Catholic and the German brothers being Protestants.
All is coming full circle. By the way, many
highly educated young Spaniards are flocking
to Germany and have landed jobs there. They are welcome
since they are cultured and very civil people,
bringing Mediterranean flair to somewhat dry
and sober Germany. It is noteworthy how the young people
of Europe are taking charge
and communicating. They are the ones who will
send today's politicians packing not before
long. All this is more difficult politically
than it is economically. Once Germany
leaves (or takes) the Euro, the bastion of France
will become somewhat useless. Russia
and Eastern Europe will
become the European center. France
would then become a defacto appendix to Germany.
This does not wash too well with the Frogs."
Watch France fall into some chaos,
but serve as provider of wine, cheese, fashion,
perfume, pharmaceuticals, and foodstuffs.

## DOLLAR FOREIGN FRONT

◄$$$ IN A FIT OF DESPERATION, THE USGOVT
COMMITTED A GRAND BLUNDER IN USING SWIFT BANK
CODES AS A WEAPON. THE REACTION HAS BEEN SWIFT
AND POWERFUL. THE UNITED STATES HAS LOST EVEN
MORE CREDIBILITY, THE PRESTIGE GONE SINCE 2001.
THE SWIFT ABUSE HAS SERVED AS A GALVANIZED PLATE
IN GLOBAL REACTION. THE ANTI-US$ REVOLT WILL
CONTINUE, AND GATHER TREMENDOUS MOMENTUM IN
2012. THE USGOVT APPEARS TO BE TWISTING IN THE
WIND OF ITS OWN FLATULLENCE IN A VAGUE ENFORCEMENT
OF ITS OWN OVER-EXTENDED POWER PLAY. $$$

In a matter of mere hours or days, the USGovt
reversed its blundering policy of a SWIFT ban
on several nations, including some European
nations doing business with Iran,
like Spain.
The reversal of policy marked a significant
day, when the US realized its error but
was powerless to avoid the nasty backlash. As
a result, the anti-US$ forces are gathering,
with sympathy from the official US allies.
The allies themselves have endured much abuse,
as they look the other way when NATO airbases
have converted into narcotics distribution route
stations. The SWIFT decision will go down in
history as a turning point rejoinder along with
the latest Iran
sanctions. They have proved disastrous to the
United States, despite the absent press coverage.
Steadfast analyst and friend of gold Jim Sinclair
added a pointed critique and harangue in early
April, perfectly on the mark, effective in its
lambaste. He wrote, "Brazil, Russia,
India,
China, and South Africa are meeting next week because of
the use of SWIFT as a weapon of war. Expect
the formation of a competitive SWIFT system
in three blocks. The dollar will test 7200
USDX and fail on the third tap. I have been
doubted on many things, much of which has come
to fruition. There was a time when $1650 in
gold was considered the ludicrous dream of a
madman. The year 2012 is when the US dollar
will suffer from a significant drop in utilization
as the international settlement currency.
The utilization of the SWIFT system as a means
of making war is the singular greatest mistake
that the dollar managers have ever made. It
might seem logical, but one should focus on
the consequences now in motion soon to isolate
the dollar in a three currency block (Yuan/Euro/Dollar)
losing at least half of its previous strength
from the international settlement mechanism
provided. It is too late to rethink the use
of the SWIFT system as a weapon of war. The
cat is out of the bag and the damage is done.
As a product of acceleration of this process,
the US dollar will test 7200 on the outdated
USDX. The test will fail on the third tap."

My German banker source assures that Asia led
by China plans to launch a new
SWIFT competitive bank transfer system, and
do so imminently. He called the maneuver by
the USGovt a massive blunder that will result
in rapid change. The new SWIFT alternative
will further isolate the United States, and contribute
to a fractured global transfer system. It
will also add to non-US$ settlement in trade,
far beyond the crude oil sector. It will diminish
the USDollar standing. Eventually it will lead
to the removal of the USDollar as exclusive
global reserve currency. Later it will become
an important factor in the isolation of the
USEconomy, leaving it vulnerable to the impact
of its galloping debt and currency debasement.
He added a final exclamation point, that US
leaders are no longer taken seriously across
the world, either in political arenas or corporate
conference rooms.

In a feeble attempt to reverse a reckless rash
decision, the USGovt decided to exempt Japan
and ten European nations from the Iran oil sanctions via SWIFT retaliation. The
message sent to major buyers, in particular
China, India
and South Korea,
is that they can avoid new US
sanctions by curtailing their imports of Iranian
crude by the end of June. Or they can perhaps
lie and claim imports have been curtailed. Secy
State Hillary appears to be aiding the charade
by claiming the eleven nations have significantly
reduced their Iranian oil purchases and thus
qualified for an exemption from sanctions for
a renewable period of 180 days under the law.
Whew!! No such waiver was granted to China, the biggest importer of Iranian crude in
the first half of last year. No waiver was granted
to India or South Korea, which were the third and fourth largest
buyers. Failure to cut back such Iranian imports
would result in the banks that settle their
oil trades being cut off from the US financial system. However,
the United
States is isolating itself
gradually, not the allied nations.

Pressure remains on South
Korea, India,
China,
Turkey, South Africa,
and other major buyers of Iranian oil to comply
with US
law. The USGovt has not yet defined what constitutes
a significant reduction, but an anonymous
source stated that 15% minimum is the target.
One must be reminded of the loose definition,
kind of like what an enemy of the state is,
when giving the USGovt permission to kill or
incarcerate citizens. The leadership crew in
WashingtonDC must be praying for compliance,
in order to avoid having the US
isolate itself in a backfire of policy. In addition
to Japan, the EU nations that purchased Iranian oil
in the past year include Belgium,
the Czech Republic,
France, Germany,
Greece,
Italy, the Netherlands,
Poland,
Spain, and the United Kingdom. They all cut back or halted their
imports in order to qualify for the exemption.
The EU imported 450 thousand barrels per day
of Iranian oil in the first half of last year,
about 3% of regional needs, according to the
Intl Energy Agency. The EU collectively accounted
for 18% of Iranian oil exports in that period,
according to the USDept Energy. Iran
is the #2 producer among OPEC nations, and earns
more than half of its government revenue from
oil sales. See the Bloomberg article (CLICK
HERE).

◄$$$ THE B.R.I.C.S. NATIONS PLAN FOR
THE FUTURE. THEY STRIVE FOR INDEPENDENT FINANCIAL
FUNCTION AND FREEDOM FROM THE STRANGLE OF WESTERN
GLOBAL BANK STRUCTURES USED AS WEAPONS. THEIR
VAST CASH RESERVES ENABLE THE PATHWAY TO MORE
INDEPENDENCE
AND SELF-DETERMINATION. A VIABLE DEDICATED DEVELOPMENT
BANK WILL IN TIME CHALLENGE THE WEST. IT WILL
ENSURE THE END TO USDOLLAR-BASED TRADE SETTLEMENT.
EXPECT SOME WESTERN NATIONS TO DEFECT FROM THE
AMERICAN FOLD AND JOIN WITH THE NEW GROUP. $$$

As the month of March came to a close, the
leaders of Brazil, Russia,
India,
China, and South
Africa convened for an
extremely important meeting in New Delhi for their fourth annual BRICS summit.
These five nations represent collectively 43%
of the world's population and 18% of world GDP.
They are a force to be reckoned with, led by
the increasingly irritable testy and indignant
China. Keep in mind that economic expansion is
not happening in the Western industrialized
nations, for many reasons. Labor costs are high.
Government regulations are diverse. Environmental
obstacles are many. Science and math abilities
are on the wane. The BRICS group currently
attracts 53% of global financial capital, which
by definition means capital formation (wealth
engine). The coalition issued yet another
direct challenge to the desperate bankers and
politicians of the West who are embroiled in
insolvency and deadlocked political debate.
They announced plans to establish a BRICS
development bank, to be funded solely by the
BRICS countries. Such an institution could
allow the pursuit of independent policies.

The billboard message is clear, of challenge
to the global financial dominance of the World
Bank and the Intl Monetary Fund. No longer will
the tagteam of financial weapons, whose offices
are littered with spooks from Langley
security agencies, be given free rein to pull
powerful monetary levers for Western interests.
In time, the BRICS countries will be capable
of funding their bank at levels that could challenge
the foremost Western institutions. It should
be noted that many of these nations resemble
the United States in the late
19th Century and early 20th Century. They boast
robust industries, high savings levels, and
strong investment, low government debt, sensible
economic policies, and vast accumulated vast
reserves.

The BRICS nations have accumulated aggregate
reserves of some $4 trillion in impressive fashion.
Compare to USTreasury debts incurred in $15.6
trillion volume. Worse, as BRICS reserves grow
each year, the projected USGovt debt will expand
by well over $1 trillion annually for the foreeable
future. The last year in WashingtonDC put on
display the deadlock for its political process,
unable to permit the Special Super Committee
to enact a single measure. The monetary dominance
of the Anglo-Americans is no longer deserved,
and will come to a bitter tragic end. No prospect
of compromise can be expected in a colossal
struggle, which stands at the epicenter of the
future world clash over money and power. Led
by China,
the BRICS appear to favor an alternative to
the USDollar, and strive to create it. They
are extremely angry at the continued hyper monetary
inflation, executed without a vote by creditor
nations. They chafe under the yoke of a monetary
system based upon insolvent broken Western economic
fundamentals. Furthermore, they are striving
for a new global trade system based upon barter,
linked to an international reserve standard
linked up gold. The current monetary regime
will be replaced, but not unless and until the
new diverse comprehensive system is in place,
ready for operation in a complex dangerous world.

The conference held in India permitted an opportunity for the BRICS to
press toward the rapid realignment of control
for international funding. Notice the G7 and
G8 Meetings have been suspended due to irrelevance,
or their gatherings are much ado about nothing.
The sovereign bond collapse can be fingered
as the proximal cause. The G20 and BRICS conferences
have wrested global center stage. Watch for
marginal nations like Indonesia,
Andes nations, the Persian Gulf nations, and
even Turkey to work toward the BRICS alignment. In
the background, the Shanghai Coop Organization
works on hidden important projects, some harmless
in cultural theme but others critical in gold
reserves demanded in return. As the United
States dedicates itself with complete conviction
to the Weimar solutions of ruin, with full faith
placed in the printing press, watch for some
of Western nations rich in savings, such as
Germany and Norway, to make significant gestures
toward joining the BRICS movement on trade accords.
The common denominator in desire is their drive
for a new system based on more sound money without
potential for unilateral debasement and abuse
toward aggression in war. The days of paper
money seem destined to rain confetti, while
the prospect of Gold & Silver will take
control. The impact to price systems within
individual economies will be devastating, higher
for those still working on paper mills, but
more stable and lower for those choosing a better
more honest path. See the 321Gold article entitled
"BRICS Plan for the Future"
by John Browne of Euro Pacific Capital (CLICK
HERE).

◄$$$ CHINESE USDOLLAR COULD BE COMING,
AS THE B.R.I.C. NATIONS PREPARE TO UNSEAT THE
GLOBAL RESERVE CURRENCY IN TRADE SETTLEMENT.
THEY MUST DEFEND THEIR INDUSTRY AND RESERVES
SAVINGS. WITNESS THE BEGINNING OF THE FINAL
CHAPTER WRITTEN ON THE USDOLLAR. $$$

Regard the BRICS global conference as a special
session of the G20. Much is stated about their
impressive size. These countries make up 42%
of the world's population and a quarter of its
landmass. The BRICS account for 20% of the
Global GDP and possess an impressive 75% of
the foreign reserves held worldwide. In
direct response to extreme financial storm conditions,
these five nations and their leaders are struggling
to produce a solution for the situation. As
the BRICS summit has concluded in India, the agenda to create an alternative global
lender and to create distance from the USDollar
as a reserve currency were their primary objectives.
Sreeram Chaulia from the Jindal School of Intl
Affairs, believes that institutions like the
IMF and the World Bank are obsolete and have
outlived their uselfulness. For the USDollar
and its corrupted managers, a massive fecal
hailstorm is in progress that cannot halt. What
follows is not a certainty, but rather a pathway
toward a solution that has both merit and potential,
compiled by self-styled analyst Alexander Higgins.

Brazil,
Russia,
India,
China, and South Africa have launched what could become a
lethal attack to replace the USDollar with a
single Chinese denominated super-sovereign global
currency. Look closely, as it would bear
the name USDollar, more exactly the Chinese
USDollar. The risk of having too many USDollars
floating in circulation outside the United States,
combined with over half of the USGovt debt
held by foreign entities, has raised the
risk to far beyond acute. China
is leading the initiative to create a new
super-sovereign currency that could rival and
displace the USDollar in certain trade and reserve
banking spheres. The BRICS nations are moving
forward with their plan to unseat the USDollar
from its throne as the global trade currency
and to replace it with a Chinese denominated
super-sovereign international currency. Doing
so requires a critical mass, and the BRICS with
their huge industrial output, massive trade,
and significant reserves accumulation, appear
equal to the trask. But it is early. They have
yet to endure the counter-attack by the United States, which usually
includes economic volleys, banking penalties,
and even elements of terrorism. Precedent abounds
over the past two decades. The battles to establish
global monetary dominance is not limited to
displacement of the USDollar in revolt. Instead
this initiative is the first strike of a concerted
campaign of worldwide economic warfare which
seeks to bring the United States and its Western allies to their
knees. Ultimately the BRICS collective is staging
a revolt to overthrow the current global financial
regime which has dominated the world for six
decades following World War II and the Arab
Oil Embargo. The primary financial pillbox targets
are the World Bank and the Intl Monetary Fund.
The disarray in both institutions is obvious.
Christine Lagarde joined the IMF several months
ago after Dominique Strauss-Kahn was unseated
in the most bizarre scene. Robert Zoellick has
announced his retirement from the World Bank,
leaving a new vacuum. Let's see if the $400
billion in new funds committed to the IMF last
week is a ruse, a pack of false promises to
placate the US/Anglo fading regime.

Brazil,
Russia,
India,
China, and South Africa have significant if not vital motivation
to replace the USDollar with a Chinese denominated
single super-sovereign global currency. For
the last two years, the entire world has endured
unspeakable unprecedented actions taking unilaterally
by the US Federal Reserve in hyper monetary
inflation for the purpose of monetizing the
USGovt and USAgency Mortgage debt. The United
States (via Wall Street handlers and the USFed
syndicate) has acted without consultation to
creditor nations, has debased the global reserve
currency to the extreme, has granted multiple
$trillion grants to elite bankers, and has caused
massive disruption to the entire global economy's
cost structure. The costs for food and industrial
input have risen to the point of causing social
unrest and strained profit margins. The world
has been forced to react in self-defense and
self-preservation. My Jackass call has been
steadfast and consistent, that the major nations
of the world had to develop and implement an
alternative to the USDollar, or else face
obliteration, that the last nations to do so
would be mortally wounded, and that the first
nations to do so would be the leaders of the
next chapter. The development and implementation
is happening, but without press coverage since
it centers upon replacing the axis led by the
United States,
England,
and France as the global powers.

The new global super sovereign currency initiative
comes in retaliation for the endless rounds
of monetary abuse directed by heretic monetary
policy. The fixed 0% rate (ZIRP) and the bond
monetization (QE) are tagteam emblems of ruin
worn proudly. The motive is clear, to jump start
the USEconomy, to support the low borrowing
costs for the USGovt, to fill the vacuum of
departed creditors, and to provide welfare for
Wall Street speculation. The end result is to
induce the risk trade by shoving investors into
the next subprime fiasco, to force a USDollar
devaluation shared by all major currencies,
and to lift the cost structure for the global
economy. The BRICS nations, in commanding an
oversized share of global reserves (savings),
have born the pain of the USDollar debasement
at the hands of the USFed. Worse, they have
done so without a vote of monetary policy. They
are angry and resentful, even highly motivated.
They have been diverting some reserves into
Gold, into commodity stockpiles, and into properties
like energy deposits. But the problem has remained
unaddressed for the entire two years of the
profound abuse to the USDollar in Zero Interest
Rate Policy and Quantitative Easing directed
by the New York and London bankers. The recent multi-$trillion channels to aid European
banks has proved a failure, with recognition
soon to come. The collapse of European sovereign
debt and the Iran sancations together have
pushed the BRICS nations to the point of taking
very bold action. One cannot minimize the added
motive that has come from the Iran sanctions and various
heavy handed tactics used by the USGovt, including
restricted usage of the SWIFT bank transaction
platform.

Never before in modern history has a nation
had to face the shame and embarrassment of losing
control of its own currency. What comes is
potentially two USDollars, one managed by the
United States Govt and another managed by the
Chinese Govt. When China surpassed the $1 trillion mark in US$-based
reserves, a serious warning signal was made.
When China surpassed the $2 trillion
mark in US$-based reserves over a year ago,
a second dire warning signal was made. The current
figure is somewhere around $2.7 trillion, a
veritable critical mass. China
has finally decided to take action, not coincidentally
during a transition of power within the Chinese
Communist Party. The leadership is changing.
The patience is gone. The trade war with the
United States, fully forecasted by the Jackass
in 2005 and 2006, is here with volume raised.
Nations have gone to war for far less than $trillions
of debt gone bad, rendered unpayable. At issue
is more the preserved economic sovereignty of
the BRICS nations under siege by the US$
debasement and its aggressive defense for exclusive
usage.

The debasement of the USDollar translates directly
into lost value of the massive reserves that
underpin those nations and their banking systems.
The devaluation of the USDollar translates into
real and direct economic impacts on the BRICS
national economies by making their products
relativity more costly to produce and with lower
profit margin to sell. Clearly debasing and
devaluing the USDollar forces the BRICS nations
to pay the tab for the economic and debt woes
of the United
States and Europe
while destroying the economies BRICS nations
in the process. It also requires the BRICS nations
to subsidize the incredible fraud and thefts
perpetrated within the US,
London, and European financial sectors. The BRICS nations are angry
to the extreme and China has been the most outspoken nation about
it in recent months and years. China
has already issued calls for international supervision
over the United States, a demand of
sorts for bankruptcy receivership via a tribunal
council. My belief is that the process is underway.
China
finally has issued demands for a single global
currency due the combination of the United
States debt problems, currency
devaluations, and outrageous illegitimate scandalous
mismanagement. The USGovt has abused global
agencies such as the World Trade Org to apply
pressure on China,
to make them play by the double standard rules.
The number of key focal points is growing, not
just Iran
sanctions and SWIFT bans, but extended to the
rare earth metal trade war. China holds most of the cards,
and is using them.

An unusual sequence of events has unfolded.
The rich but somewhat crippled nation of South
Africa has taken a lead
baton with which to hit the United States over the head. Few have paid attention
to Africa, the new ground
zero for the BRICS attack. Despite its own marxist
core of mismanaged leadership, the Union of
South Africa is taking the collective lead in
pushing the Chinese currency, the Yuan (aka
Renminbi), as part of a pilot program to make
the currency the new defacto standard for international
trade in emerging markets. At a later date,
sooner than commonly anticipated, the Chinese
Yuan might merge with external USDollars held
in reserves to convert into a single super-sovereign
global currency. Keep in mind that mountains
of USDollars are held in reserves outside the
United States,
where the US
leaders are fast losing control and influence.
Higgins concludes, "The hope is this
new currency will strip the global financial
regime it rules of its power and hence relieve
the United
States of its role of imposing
political and economical views on the rest of
the world. Clearly the United
States is well aware of
this plan and has been making preparations to
head off the attack for years through AFRICOM.
The is obviously apparent in the use of USAFRICOM
to militarize the entire continent of Africa
to fight off China's imminent economic encroachment. While
we consider all of this, let us not forget that
the currency war of the 1930s culminated into
and only ended with the greatest military war
ever fought, World War II." See the
Higgins weblog article (CLICK HERE).

The Jackass has mentioned Africa
as the hidden next hot war battleground in several
past Hat Trick Letter reports. The spearhead
of South African calls to replace the USDollar
in trade settlement is a battle counter-offensive
in the war that stretches across the vast virtually
untapped Dark Continent.
The battles in the Congo
are part of the war, steeped in US
agency smuggling. The irony is thick, as South Africa is marxist and the Obama Admin has
hidden marxist pillars throughout its policies.
The Obama wayward paths have produced greater
economic weakness, grander deficits, matched
by extreme aggression on financial platforms.
Little South Africa is tossing spears at the US like Massai Warriors.

◄$$$ IRAN HAS ESCALATED THE WAR ON SANCTIONS IN A LIMITED
COUNTER OFFENSIVE. THEY CUT OFF OIL SHIPMENTS
TO SPAIN AFTER CUTBACKS ELSEWHERE ACROSS EUROPE. THE NATIONS ON THE CONTINENT MIGHT SOON BE FORCED TO CHOOSE
WHICH CAMP TO RESIDE IN, ONE LED BY THE UNITED
STATES OR THE REST OF THE WORLD. $$$

As bank sanctions continue, Iran has reacted to non-payment and to principle.
The Iranian Govt in Tehran
has cut oil supply to Spain
after previously halting crude export to Greece.
The counter-sanctions have begun. Tehran
is considering the cutoff of oil supply to Germany
and Italy.
The insolvent industrialized nations are shooting
themselves in the feet and legs, as they follow
the United
States down a dead end
alley. One must wonder how much more Iranian
crude in the real world China
and India
are importing despite promises to the contrary,
and open US warnings. Reminders of the CPI being
near 3% are vivid, the reality being more like
10% to 11%. The US
has put itself in an impossible situation. China will not follow any warnings from Hillary.
Witness the paper tiger whose paper mache is
chipping off quickly, revealing a mere wire
mesh that lacks muscle or bite.

Defiance reigns. President Mahmoud Ahmadinejad (aka I'm Your Dinner
Jacket), claimed his nation can last for years
without exporting oil. The defiance lacked credibility
on its face. He actually stated that even without
oil sale revenue for two or three years, the
economy could still manage and adapt easily.
A reference was made to a United Nations Security
Council meeting in mid-April that will include
Germany in a special session
to discuss more strict sanctions. A ban by the
entire European Union on Iran
oil purchases could come into force by July.
Already Iran has halted oil sales to two Greek companies,
Hellenic Petroleum and Motor Oil Hellas, after
failure to make payment. The Oil Ministry in
Tehran cut exports to France
and the United Kingdom in February,
in a gesture that pre-empted the EU ban. See
the Zero Hedge article (CLICK HERE)
and the Bloomberg article (CLICK HERE).

◄$$$ MAJOR GLOBAL NATIONS STEEPED IN
TRADE HAVE REACTED TO FEARS OF FUNDS TRANSFER
CUTOFF. THE AGGRESSION OF THE UNITED STATES
IN FINANCIAL COMMERCE HAS LED TO BILATERAL SWAP
ACCORDS. THEY SERVE AS PRECURSOR TO REMOVAL
OF THE USDOLLAR FROM TRADE SETTLEMENT. THEN
FINALLY COMES LOST GLOBAL RESERVE STATUS. CONSIDER
THE OIL SWAP BY AUSTRALIA
& CHINA.
$$$

Veteran Robert Fitzwilson is founder of the
Portola Group, one of the premier boutique firms
in the Unites States. In a King World News interview,
he explained how countries are engaging in currency
swaps out of fear of being cut off from international
transfers. Fitzwilson believes Gold & Silver
are preparing for a major price move. The well
traveled experienced Fitzwilson commented on
recent developments pertaining to the global
banking warfare and the domestic US monetary debasement, with allusions to crude
oil stockpiles, the labor market, and precious
metals. Counter-attacks are being motivated
by US actions. Notice the reference to barter.
He said, "Another development that has
been happening in recent days is swaps being
made. China and Australia just recently completed a $31 billion
swap of their currencies. To me that is tantamount
to barter. These countries have essentially
pre-positioned their currencies, probably because
they are worried about being cutoff from international
transfers. Jim Sinclair has pointed out
what is taking place with the SWIFT system.
Let me add that SWIFT has now become a weapon
in the currency wars and as Sinclair correctly
stated, unfortunately the United States is now
threatening other countries. The US
is saying if they do not do what we want, we
will cut them off from SWIFT, which will effectively
shut down their economy. We have already seen
this with Iran. So India and Iran were trying to do an oil for gold swap. Evidently
we have warned the Indians because we are not
happy about that. So SWIFT is being used to
threaten our trading partners and allies.

As we now know, South
Africa is actively trying
to participate in dethroning the dollar as the
reserve currency. If you look at the pattern
of what is happening, these are like mini earthquakes
all over the world. When you add these seismic
events together, it suggests that something
may be imminent, perhaps in the next month or
two.Saudi
Arabia is suddenly sending
22 million barrels to the United States. Why did they do that? Are they
trying to get paid for it before there is some
sort of eruption in the Middle
East? Is the US stockpiling oil ahead of
war? There are military assets being positioned
all over the Middle East, on all sides. So something is building and these countries
are taking action ahead of that for self-preservation
which is understandable.

The part of Bernanke's speech that really
rang true for me was him describing the unemployment
as being cyclical, instead of structural. The
Fed has, in the past, been communicating that
unemployment has been structural for some time.
By overtly switching to cyclical, that means
they are admitting they need to do some form
of Quantitative Easing, and a lot of it.
The implication is that QE can solve cyclical
unemployment, but that is patently false. However,
to me this was a sea change, where he is now
saying unemployment is cyclical and we need
to print a bunch of money to solve problems,
and we are going to do that.

My observation of the patterns in Gold &
Silver is we have been involved in long range
trading. There is a limit that central banks
have imposed on the price of Gold & Silver.
When it gets to that limit, the central banks
pile in and drive the price of gold and silver
back down. The smart central banks then buy
the bullion at incredibly cheap and subsidized
prices. The market feels to me like it is
getting ready to enter a new higher range. The
new short-term cap on silver as an example,
might be $60. The bottom line is the advance
in gold and silver is being managed. So it is
going up, but it is not time for the mania.
We will not see the mania until they lose control.
But we are getting close to something that should
provide tremendous upside fuel for both Gold
& Silver." See the King World News
interview (CLICK HERE).
The Jackass disagrees on a key point regarding
precious metals. The gold cartel buys the
bullion at lower prices on the paper market,
while the same cartel banks are forced to sell
bullion on the physical market at the same low
prices. Fitzwilson makes it sound like the
gold cartel benefits from the price ambushes
generates by naked shorting. Instead, quite
to the contrary, the gold cartel is forced to
shed its physical bullion and replace it with
evermore mounds of gold paper. The banks are
weakened, hollowed out, and rendered vulnerable
to the next attack. Metal walls are stronger
than paper walls during storm sessions. He seems
a good soldier but oblivious to the powerful
new obscured movement to kill off gold cartel
member banks like UBS.

## CENTRAL
BANKS & BUSTED BONDS

◄$$$ SPAIN,
FRANCE,
AND THEN ITALY ARE READY TO REJECT
THE AUSTERITY POISON PILLS. THE WEST IS ON THE
CUSP OF SOME VERY SERIOUS MAIN STREET HYPER
MONETARY INFLATION FINALLY. THE QUANTITATIVE
EASING TO DATE HAS BEEN A BANKER ORGY WITH BENEFITS
GOING ALMOST EXCLUSIVELY TO THE ELITE BANKERS.
WHEN EUROPE BUSTS WIDE
OPEN WITH THE AUSTERITY BUDGET REJECTION, THE
GATES WILL FLOOD WITH NEW MONEY IN AN UNMISTAKABLE
POPULIST ORGY. AT THE SAME TIME, THE BANK RECAPITALIZATION
INITIATIVE MIGHT KICK IN. AT LONG LAST, SIGNIFICANT
PRICE INFLATION MIGHT SOON COME AFTER A FEW
YEARS OF FIREWALL ENFORCEMENT AT THE ELITE FENCES.
THE INITIAL PINPRICK WILL BE FROM FRANCE AND
ITS NEW LEADER HOLLANDE, WHO HAS BIG CHANGES
IN MIND. $$$

A series of editorial comments is warranted.
The French presidential election is imminent.
Challenger Francois Hollande is gaining ground
against the establishment horse in Sarkozy.
My firm belief is that the Hollande victory
and ensuing policy actions will serve as the
lance to pinprick the entire austerity budget
requirements, those bitter poison pill suicide
pacts, and toss them aside. The consequences
will be severe in a change of the guard. It
will be interesting to watch, full of intrigue
as the bankers attempt to hold back the throngs
(of money). The public can eat no more cake.
This is after all a financial global war. My
expectation and hope is that Sarkozy goes down
in flames, and as he does, his links to security
agencies is revealed. What follows will be even
more powerful and significant to foment change.
Spain and France, then Italy will all reject the Austerity Poison Pills.
The world is on the cusp of some very serious
Main Street hyper monetary inflation. The Euro
Central Bank has been feverishly replenishing
the big European banks, but doing so with new
toxic bonds to replace old toxic bonds. A more
vigorous meaningful bank recapitalization could
occur at the same time as massive new budget
deficits approved for the purpose of social
relief, business relief, and infrastructure
repair, even reconstruction after riot damage
to cities.

Hollande has raised concerns in Berlin and other capitals by criticizing a European Union accord on
debt and deficit control. The misguided ineffective
fiscal compact forged in an effort to counter
the EuroZone debt crisis has been demonstrated
as ineffective and disastrous in Greece, yet it continues. It is about to be
rejected by a host of nations. Hollande calls
for a renewed pro-growth commitment. It will
be costly, leading to bigger deficits. It also
will interfere with the elite plans to collapse
the economies in order to impose dictatorial
rule. Hollande said, "Germany understands that it
cannot remain an island of prosperity in an
ocean of recession. The changeover in France
will pave the way for a change of direction
in Europe." The
CSA poll showed Hollande taking 57% of the vote
in the final deciding round, up from a score
of 54% previously. In France, they conduct runoff elections, whereby
the top two winners in the overall election
face each other, if neither wins over 50% of
the total vote. The first vote is Sunday April
22nd. See the Yahoo News article (CLICK HERE).

Hollande has some basic sledge hammer plans
that will shake up France
and possibly turn it upside down from the bottom
up. Outgoing Sarkozy turned the nation upside
down from the top down, with big bank welfare
and strict attention paid to the elite channels.
Hollande has many plans like capping
executive pay packages, a stiff 75% tax on all
income over $1.3 million, a tax on all financial
transactions, a repeal of EUR 35 billion in
tax breaks, and a higher 35% corporate tax (to
rival the US, highest in the world). Hollande
also wishes to scrap the 1.2% VAT imposed by
Sarkozy, to permit pensions only after 41.5
years of service, to limit executive pay at
state owned companies, to limit leveraged buyouts
of corporations, to hire in schools, police
forces, and give attention to the young. He
wants to reduce nuclear power usage from 75%
to 50% nationally, but freeze gasoline prices.
He urges the removal of French troops from Aghanistan
in the current year. He wants to hand over more
central power to the regional centers. The plans
of Sarkozy do not matter, since the present
course is the only important indication. See
the Bloomberg article (CLICK HERE).
The Hollande plan is a direct slap in the face
of the elite, a grass roots vintage socialist
slam.

◄$$$ EXPECT SOME CURVE BALLS OF UNEXPECTED
EVENTS FOLLOWING THE ELECTION OF HOLLANDE, OR
DURING THE ELECTION PROCESS. THE SARKOZY TEAM,
WITH WALL
STREET AND US-SECURITY AGENCY SUPPORT, MIGHT
HAVE LAID SOME UGLY TRAPS. BUT THE EUROPEAN
CURRENCY MARKET IS RIPE FOR SOME SUDDEN SHOCKS.
$$$

A trusted German banker made comment. He wrote,
"Hollande may win in France. Once in office, 98%
of all his actions will be dictated by circumstances.
These guys are all a bunch of clowns. Over ten
years ago, I remember well when Germans told
French President Mitterand that forcing Kohl
to introduce the Euro currency in exchange for
France consenting to German reunification would
destroy Europe politically and economically
over a timeline of 25 years maximum. His reply
was 'WELL, YOU DESTROY IT AND YOU FIX IT. YOU
ARE GOOD AT IT. YOU ARE ACTUALLY THE ONLY ONES
WHO CAN DO IT.' The rest is history. In the
next several weeks, the potential exists for
some disruption, in reflection of the currency
regime and bank balance sheets in Europe.
There are strong indications that the restructuring
and re-calibration of the Euro currency is to
happen a lot faster than anticipated by many
observers. Look for a shock wave in the
next chapter, as the event driven Spanish and
Italian scenarios gain momentum. At the same
time Beijing will make their Renminbi freely convertible, which will inflict
deep damage to the USDollar with lightning speed.
All these actions are self-defense measures
by the countries that need to fill the power
vacuum left by the implosion of the Anglo-American-French
axis. As their last stand the United States
will promote and instrumentalize radical Muslim
groups in China, Russia, the former Soviet Union,
and Africa to create as much instability and
trouble as they can." The radical Muslim
weapon was first used on 911 in New York City and WashingtonDC, in the false flag attacks. The USGovt
has a very long extensive history of false flag
attacks that goes back over 200 years, such
as the USS Maine in Cuba, the Gulf of Tonkin
in Vietnam.

The new French debt bond futures market
(FOAT) might have some immediate land mines
well placed by the usual suspects, the Americans
on Wall Street. Despite obvious danger,
the new FOAT market could easily permit Morgan
Stanley, the typical derivative monster active
in the last two years, to hedge its Greco-French
debt exposure in a manner steeped in French
disadvantage. The market's April 16th debut
has proceeded, and has created some speculation
as to whether Sarkozy and his cadre have built
a booby trap for Francois Hollande, to be triggered
when the upstart wins the election. Across to
Germany,
a different perspective prevails. Francois Hollande
in mid-April requested the German Federal Financial
Supervisory Authority to prevent the Eurex launch,
but the Germans turned his request down flat.
The Chancellery in Berlin
might be pleased to weaken France's
financial outlook during the election window,
and to demonstrate that socialism and rejection
to austerity budgets cause worse problems. The
old guard of politicians in Sarkozy and Merkel
could have devised a sabotage that roils markets
and displays a continental treason in high office.
The big question is whether some dire damaging
event could occur between the initial presidential
election and the run-off against the Socialist
Hollande. See the WordPress article (CLICK HERE).

Colleague and sharpy Craig McC in California pitched in a great comment. He said, "If Sarkozy
loses the election to Hollande, I do not see
any hope for France to be included in a new Nordic Euro currency
pack since Hollande will not provide the needed
austerity measures. Should Sarkozy win, but
France is rejected from being included in a Nordic
Euro, Sarkozy might curry enough political and
financial support for a Club Med Euro. However,
if Hollande wins, I believe the most likely
currency outcome is for the non-Germanic countries
to revert to their historic currencies, namely
the Franc, Lira, etc." A savvy German
banker pitched in a reply, saying "The
final decision is a political one. You do not
want the French to be running amok in the Mediterranean
sphere."The Jackass adds that France could easily find a significant role as
Lord of the Flies, the leader of the broken
PIGS nations, in a dispatched role approved
by Germany.
More importantly, a Euro currency without Germany will fall in value like a stone in a pond.
The resulting Latin Euro will not stand of its
own without severe devaluation. Each country
will want to control the devaluation, to dictate
the budgets, and to press on with nationalism,
which will lead to several domestic reverted
currencies. Just my thoughts, based in practicality
and national pride. When systems fracture, nationalism
enters the picture.

◄$$$ THE STRANGE PART OF THE FINANCIAL
CENTERED HYPER MONETARY INFLATION IS THAT IT
HAS BEEN CONTAINED WITHIN THE FINANCIAL SECTOR.
VAST SUMS COVERED NUMEROUS SPUTTERING PITS,
TO HIDE THEIR EFFECTS. $$$

Truly vast sums of newly created money have
covered the vast derivative losses, redeemed
the vast bond losses, and replenished vast losses
in bank reserves. The newly created money has
also enabled continuation of huge banker executive
bonuses, their reward for presiding over the
historic bond bust and successful fraud programs.
The notable pain comes from the incomplete but
still sizeable leakage to the entire financial
system, including the commodity markets, which
has resulted in higher global cost structure,
including food. One should expect that will
change soon when austerity budget measures are
rejected in Europe, starting in France
and Spain.
The United
States rejected them last
summer with the Super Committee fiasco, a public
display which could not agree on a mere trifling
$150 billion per year in spending cuts. The
USGovt demonstrated itself as a verifiable laughing
stock of corruption, greed, and incompetence.
Its leadership is like from Mad Max with suits
and limos crashing barriers.

◄$$$ OPERATION WEIMAR WAS WITNESSED IN THE L.T.R.O. PAPER MACHE PROGRAM. IT IS THE
FINAL ACT, THE FRACTURE IN FULL VIEW, THE CLIMAX
IN LIFTING THE CURTAIN ON THE FIASCO. SPAIN,
ITALY,
AND PORTUGAL VIVIDLY DISPLAY THE
ABUSE OF NEW TOXIC BOND PAPER. THE L.T.R.O.
FIASCO WILL MAKE CLEAR THAT NEW DEBT CANNOT
REPAIR THE DAMAGE FROM OLD DEBT THAT SUFFERS
PROFOUND IMPAIRMENT AND RUIN. THE L.T.R.O. PROGRAM
IS DEEPLY FLAWED, IN THE PROCESS OF BEING WIDELY
RECOGNIZED. $$$

The Long-Term Refinancing Operations, steeped
in new immediately toxic bonds, is not a solution.
The data from Spain underlines the LTRO
downside and deep flaws. The new Draghi Euro
Central Bank has pursued the LTRO solution since
December. In the last four months, the ECB has
pumped over $2 trillion of liquidity into the
EuroZone banking system via cheap, three-year
loans. More bonded debt at ultra-low yields
is not a solution to the systemic damage wrought
by decades of other bonded debt gone toxic.
The LTRO solution was hailed for easing fears
of a near-term banking collapse. It simply bought
weeks. That in turn spurred investor risk appetite,
contributing to the global equity rally of the
first half of 2012. Bank stocks in particular
have lifted in value, but the meter of value,
namely the USDollar and Euro, is broken. The
supposed success was noted by pointing to Spanish
and Italian Govt bond yields pulled down from
crisis levels. The big Euro banks have used
the cheap funding to snap up the high-yielding
peripheral debt. We were told that the LTRO
bonds were merely a method for ensuring its
monetary policy measures were successfully transmitted
to the market. The bond surge was proof. Yet
the success was fleeting, and the viral fever
in the Spanish Govt Bond market has returned.
Expect a renewed rupture in Spain
and Italy,
enough to spew toxic secretion pus everywhere
and expose Draghi as a hack wizard using tainted
bond paper much like chicken bones and rooster
feathers and incantations.

The weather vane has turned dangerous and ominous.
Monthly data from the EuroCB and the Bank
of Spain showed that gross borrowing by Spanish banks
jumped to more than EUR 316 billion in March,
up 50% in a single month, a new record high
level. The breakdown of the data confirms
the anticipated tally. The second LTRO round
run by the ECB in February was dominated by
Spanish banks. They gobbled up almost EUR 200
billion of the total volume of EUR 529.5 billion.
Published figures disrupted financial markets,
pummeling the Spanish IBEX stock index and pushing
up Spanish Govt Bond yeilds. The exposure is
in the open, on how the LTRO solution merely
patched over the toxic bond lifeline to the
toxic banks. The reality appears easy to perceive,
that the LTRO funds were used to refinance maturing
bank debt, and to purchase a sizable amount
of Spanish Govt debt. A big red warning signal
is flashing on the Spanish banking system. Van
Vliet of ING Brussels noted that net purchases
of government securities totaled EUR 61 billion
in the three months to February. He said, "Funding
liquidity is one thing, but solvency is another.
The ECB 3-year LTRO's have done little to
fundamentally improve the solvency situation
of either the banking sector or the sovereign,
which is what recent investor concern has centered
on. For this to happen, we would likely need
to see a sustained return to economic growth
and an imminent end to the real estate slump,
both of which currently seem a long way off."
Nice reality check. See the Market Watch article
(CLICK HERE)
and the Zero Hedge article (CLICK HERE).

Spain captures most of the incremental crisis
news, but the abuse of LTRO borrowed funds extends
throughout the pen of PIGS. My old colleague
sharp analyst Russ Winter provided some summary
points. He believes both the USFed and Bundesbank
have recently awakened to the Merda Storm of
a Portuguese type. The Jackass prefers the term
Scheiss Storm with my one-eighth part German
roots. But in Spain los bancos estan comiendo
mucha mierda. Let's get serious. The major financial
press networks are beginning to detect that
the heavy application of the LTRO program
has been highly damaging already to the European
banks, again in the South. The Spanish banks
borrowed LTRO funds to speculate on Spanish
sovereigns at prices that have moved to negative
ground. They might have expected a similar outcome
to the USFed sponsored carry trades, except
in Europe they came with a backfire of PIGS flatullence. The artificial
buying frenzy has come and gone, but in a dangerous
bond pen. The return of Spanish and Italian
Govt Bond yields to warning signal levels is
proof positive that the Draghi LTRO approach
is flawed. Once again, the central bankers,
not knowing any other recourse, prescribed a
better label of Jack Daniels to the alcoholic
patient. More bank delirious tremens is the
result. The sovereign bond guarantors will not
be able to cope with the bank needs when the
bond paper turns toxic again, with ever shrinking
half-life. The upward move in bond yield might
not look alarming, but bear in mind that the
solution was supposedly applied in the last
couple month. It did not cure the malady. The
bought time is used up.

In 2008 the Banksters assessed the total PIIGS
problem would cost $10 billion. As time went
on the figure was revised to $50 billion, then
$100 billion, and then $500 billion. Then they
said $1 trillion and no more. Then rumors spread
it would be $2 trillion. Wait, now the frustrated
banker elite mouthpieces are saying the final
figure is $4 trillion. They need to print
tens of $trillions as the Extend & Pretend
rolls on. Soon the deception and incompetence
among central banker will be seen by the accepted
crowd from these High Priests of Finance. They
are more like Mayan Priests of sacrifice to
money itself. The system is imploding, as people
are slowing awakening to the greatest fraud
in human history. The syndicate hand is all
over the place. The Jackass said at least $2
to $3 trillion from the start would be required
to fix European banks and bonds, earning ridicule,
which in my mind was confirmation. Reasonable
on the mark forecasts result in a lot of scorn
by the mainstream thinking crowd.

◄$$$ AS POLITICAL LEADERS LOYAL TO THE
ELITE ARE OUSTED, THE DEBT GAME WILL CHANGE.
THE CENTRAL BANKERS ARE GIVING HINTS OF THEIR
DESPERATION TOWARD A BOND MARKET REFUSING THEIR
REMEDY. AS SPAIN AND ITALY REACH FOR THE RED WARNING LIGHT SIGNAL,
THE CENTRAL BANKERS WILL HAVE NOTHING TO OFFER
EXCEPT DENIAL OF RESPONSIBILITY. BANK RUNS IN
ITALY
AND SPAIN
ARE IN PROGRESS (TURKEY TOO), THE IMMEDIATE THREAT BEING IN ITALY. THE FOREIGN DEPOSITS
ARE IN FLIGHT. $$$

Without less publicity, the Italian banks took
EUR 354 billion in LTRO funds, slightly more
than the Spanish banks. Portuguese bank dependence
on fresh EuroCB borrowing rose to a record EUR
56 billion. Hence, just these three PIGS
swine placed over EUR 710 in fresh tainted capital
into their critically insolvent banks replete
with effluent odor. Russ Winter believes
the signal of shut down financial markets every
few days means the EuroCB essentially owns the
broken banks and will inherit their losses,
new and old. Their rotten collateral should
never be accepted for new loan approval, except
in sustaining the broken system. Expect the
central bank to pawn off the accepted collateral
in discounted dumps to private equity firms
and big banks later on, a long shot perhaps.
The Long-Term Refinance Operations continue
the heretical theme laid out by the European
Financial Stability Facility (EFSF) of 2011.
Perhaps next year, a third equally flawed facility
will be created, but time is running out. The
nations to backstop the LTRO new tainted funds
are Spain, Italy,
France,
and Germany. Given that
the first two are recipients of funds, the actual
practical backstop comes from France
and Germany. The tide
will turn with ousted political leaders who
act as bankster agents and proponents of greater
budget austerity. Those leaders proposing more
powerful poison pills will be tossed out. The
key date of April 22nd is when France will conduct its first
round of presidential elections. But another
key date is May 6th for elections in Greece
and Germany.
France's
first round of elections begins on the day of
this report posting. Follow the viral fever
on Spain
bond yield (CLICK HERE)
and Italy
bond yield (CLICK HERE).

◄$$$ THE IMMEDIATE BANK THREAT IS IN
ITALY. THE BANK PORTFOLIOS
ARE SUFFERING BIG LOSSES. THE FOREIGN DEPOSITS
ARE IN FLIGHT IN WHAT CAN ONLY BE DESCRIBED
AS A RUN ON ITALIAN BANKS. $$$

Italian non-performing loans are surging
to the highest level since 2000. Concurrently,
foreign deposits are plunging. This is a run
on the entirety of Italy. On April 18th,
on a single day the Bank of Spain announced
that Spanish bad bank loans have risen above
8% of total for the first time since 1994. In
a chorus rhyme, the bad debts in Italy have beached EUR 107.6
billion, equal to 6.3% of total. That is
the highest level since 2000, a shocking double
from 3.0% in June 2008. The data gets worse.
Domestic banks benefited from the LTRO bank
loans from the Euro Central Bank. They stuffed
the banks with fresh loans, some in conversion
of old toxic to new soon toxic bonds. Domestic
Italian bank deposits rose by a sturdy 1.6%
in February. However, the foreign deposits
declined a staggering 16% in February on a year
over year basis. That was the eighth consecutive
monthly decline. Observe the bad debt chart,
which resembles Greece far too much. My Jackass forecast has been
for Spain
and Italy
to follow the path of Greece
with a fixed time lapse, a forecast made over
18 months ago and repeated often. It is happening,
no surprise. The external funding of Italian
Govt debt is vanishing rapidly and completely.
The nation of Italy
is fast becoming a ward of the EuroCB, as will
Spain next. Net funding from foreign sources
stood at EUR 182 billion, down 32.5% year on
year. Without external money, the central
bank must step in to save the Italian Govt Bond
from collapse. The signal is rising bond yield.
It is rising.

The Italian Economy is mired in recession,
no debate, unlike the liar infested United
States. The gross Non-Performing
loans in Italian banks rose 16.5% to EUR 107.6
billion in February, quite an impressive step
backwards. Credit quality deterioration
is horrendous, a quantum level worse than the
levels seen before the start of the financial
crisis. Within the enclosed world of lending,
the bad loan percentage went from 6.3% in February
(among all private sector loans) from a mere
3.0% in June 2008. The orgy of EuroCB loan grants
clearly covers the toxic bonds held by the big
European banks, not to be made available for
the overall economy. The same is true of the
biggest pig beyond the PIGS pen, the United States. The de-leverage environment continues
to act like a giant wrecking ball in Europe.
The phony accounting permitted by FASB in the
United States
avoids such an outcome, which means the US lives in a fantasy world.
It has for over 25 years. An IMF study reported
that European banks could be forced to sell
as much as $3.8 trillion in assets through 2013
and curb lending if governments fail to stem
exploding budget deficits. Shocks are in progress
that challenge the firewalls in place. Prices
of bonds in Europe will surely plunge. See the Zero Hedge article (CLICK HERE).

## USFED AS TOXIC CENTRIFUGE

◄$$$ BIG WARNING SIGNALS ARE FLASHING
FROM THE CENTRAL BANK PILLBOXES AND CASTLE
TOWERS. THEY ARE SCARED
WITLESS ABOUT THE LAUNCH OF NEW STRONG VIABLE
CURRENCIES. EXPECT DURING THIS CLIMAX OF CRISIS
FOR THE LAUNCH OF AT LEAST TWO NEW CURRENCIES,
BOTH STURDY STRONG. IN SUCH A SETTING, TWO OTHER
UNEXPECTED CURRENCIES MIGHT ALSO ARRIVE, TO
ENSURE BALANCE AND TO MINIMIZE THE CURRENCY
EXCHANGE RATE IMPACT AMONG THE WINNERS. $$$

Pay close attention to some recent USFed language
uttered by Bernanke lips. New words have entered
the lexicon, indicative of extreme crisis. They
paint a picture of a wrecked monetary system
not responding to heretical solutions that solve
nothing. Tying the loose ends together is Chairman
Bernanke, who has suddenly used words like shadow
banking and collateral
and vulnerabilities in his speeches.
For those with a functioning brain stem, and
an elementary ability to piece together a mosaic
picture, the language suggests that collateral
in general toward LTRO loans has caused deep
indigestion for the tagteam of Bernanke at the
USFed and Draghi at the EuroCB. The hotlines
surely have been very active on secure phone
lines. Expect a central banker schism to
come soon, where Bernanke criticizes the bad
collateral taken in Europe,
even though the USFed has accepted similar equally
toxic paper. The USTreasurys simply have
the advantage of heavy debt monetization at
the same time, from control of the printing
press. In the deep division, Bernanke will argue
that owning several $trillion in ultra low yielding
long duration sovereign bonds in the United
States, even with an approaching 105% debt to
GDP ratio, is nothing like what the ECB has
done.

A few years ago, a $trillion portfolio of toxic
mortgage bonds would have been considered a
big deal. But the United
States and the West have
passed through the tunnel and entered the Land
of Insolvency and Toxic
Ponds, populated by Ugly Trees, the banks deemed
Too Big To Fail. Regard TBTF banks to mean corrupt
syndicate insolvent zombie masters that serve
aggressive militaristic governments. Yet Bernanke
is treated like a demi-god, put on the cover
of popular magazines as a hero, despite numerous
analytic blunders (many caught by the Jackass
in stride, real time) and denials proved wrong
quickly. This is pure Orwellian and signals
a profound fascist dictatorship era coming,
or here already. The calendar will be suspended
also. Moodys has postponed its announcement
on European bank ratings until early May. Previously,
it had Italy scheduled for April 16 and Spain for April 23. Additionally,
rumors floated that the ECB will engage in more
Jack Daniels, Wild Turkey, and Southern Comfort
by purchasing even more Spanish and Italian
bonds for benefit of Southern periphery nation
glue. Spain sold two-year and 10-year bonds on April
19th, which will verify the rumor. The financial
markets find themselves painfully addicted to
central bank largesse. The calls of joy are
heard when more funny money flows from the central
bank effluent pipes after their toxic brew has
fermented sufficiently. The chorus of analysts,
sages, and quacks has begun to sing negative
tunes, like Mohammed El-Erian of PIMCO, like
Michael Steinhardt, and like the clown Barton
Biggs (with horrendous track record).

Eyes are more open wide this time around, as
the large group of Spanish and Italian bondholders
will be totally aware of how the game is played,
having seen how Greek private debt holders
were subordinated to the ECB in the bond restructuring.
The conclusion is clear, that the LTRO could
be the layer of paper mache that truly fractures
in full view since it was designed as the grand
solution. Many like the Jackass have been waiting
for a grand solution attempt ever since in late
2009, when Greece broke wide open. The
LTRO seems to be it, since touted as the ultimate
debt repair. It will fracture in full view,
at the same time two to four new currencies
might arrive on the monetary landscape.
Watch for the new German Mark (Euro Mark, Nordic
Euro), the fully convertible (possibly soon
gold-backed) Chinese Yuan, the new Russian Ruble,
and the new Gulf Dinar. The important pre-requisite
to a newly launched currency of better grade
and higher quality ingredients submitted by
more honest brokers is that they must arrive
in unison. This concept is not discussed
even in the gold community. If not, then the
best of the class because a victim of its own
success. Its exchange rate would rise to the
point of damaging the export trade with a vicious
cycle hitting its domestic industries. Therefore,
when a new competing currency is launched, expect
it to arrive in a group. They know the Competing
Currency War game, having been victimized by
it for two decades.

◄$$$ YELLIN BLESSED THE USFED EASY POLICY,
AND IN DOING SO LIT A SMALL BRIEF FIRE UNDER
GOLD. THE CENTRAL BANKERS ARE ENACTING EVERY
CONCEIVABLE POLICY TOWARD HYPER MONETARY INFLATION.
BUT THEY HAVE LATELY BEEN FLIPPING THE NAKED
SHORT SWITCH ENFORCED BY JPMORGAN TO KEEP THE
PRECIOUS METALS TAME WHENEVER BERNANKE SPEAKS.
$$$

The USFed is proclaiming its easy monetary
policy to be appropriate, in a sick endorsement
of extreme historically unprecedented accommodation.
The near 0% policy has been in place for
three full years, a set situation never before
seen. It is evidence of failure. The banks
are insolvent. The USGovt cannot afford to finance
its debt at normal levels of borrowing costs.
Speculation requires free money. And war without
cost is exploited to pad the narco baron accounts.
Janet Yellen is a reliable mouthpiece for the
Open Mouth Fed. She called attention to high
unemployment and the headwinds facing the USEconomy,
in justifying continued 0% money. What a travesty!
She actually stated if necessary, that the central
bank has a variety of options were it to engage
in further asset purchases. She repeated the
equivalent of beauty pageant pursuit of world
peace as high priority when she repeated the
USFed willingness to take whatever actions might
be necessary to achieve its mandate of promoting
employment and keeping inflation in check. Instead,
its track record since the Greenspan Era has
been gallopping unemployment over 20% with annual
10% price inflation, failure to the extreme.
Yellen deemed the economic outlook as particularly
uncertain, as she highlighted concerns about
unemployment. Still, Yellen fell back to the
usual cockeyed refrain of expecting the economic
recovery to continue and even strengthen somewhat
over time. It is stuck in a powerful recession,
if truth be told. She defended the indefensible
heresy, stating that the USFed will keep benchmark
interest rates near zero through at least late
2014. She admitted being prepared to react to
conditions if the United States exited quicksand
or insolvency. Upon leaving, the crowd genuflected
in deference, thinking thoughts of sainthood,.
uttering words of high admiration. What a farce!!

◄$$$ NEGATIVE REAL RATES ARE THE MAIN
FIRING CYLINDER TO THE GOLD BULL. THE OFFICIAL
USFED RATE NEAR 0% ENSURES A VERITABLE PERMANENT
GOLD BULL MARKET. IT WILL BE INTERRUPTED BY
THE USGOVT DEBT DEFAULT ENSURED BY SYSTEMIC
FAILURE. $$$

This point on the gold bull power pack deserves
repeated mention every three months, as a reminder
that artificially cheap money powers the
bull market on its primary cylinder, marked
by negative real rates. Jeff Clark calls
it gold's critical metric, the Jackass the main
firing cylinder. When the official interest
rate is reduced by the prevailing price inflation,
the resulting real adjusted rate dictates the
gold bull gear and speed. It is at high gear
and has been for three years. In 2009 when the
USFed dropped the benchmark rate to near 0%,
the CPI was around 9%. Take the 10-year USTBond
yield instead since it drives the interest rate
for savers. Even at 4%, subtract the 8% CPI
to arrive at minus 4% in 2009. In year 2010,
the USTBond yield (TNX) was still around 3%,
with CPI moving up to 9%, producing a real adjusted
rate of minus 6%. In year 2011, the TNX was
around 2% with CPI up to 10%, for a real rate
of minus 8%. These latest weeks, the TNX
is still around 2% with the CPI between 10%
and 11%, for a real adjusted rate of minus 8%
to minus 9%. The reality based CPI is taken
from the excellent work by John Williams and
the Shadow Govt Statistics crew. The USGovt
CPI is an insult to any normal person's intellect,
and the best friend of nitwits who are devoted
to the investment world, selling paper. The
negative real rate is growing more negative.

Many other reasons work to make gold a favored
investment, from fears that the monetary hyper
inflation will jump the gates and hit Main
Street. There is also the sovereign debt concerns
over bond breakdowns, an important factor since
the debt structure serves as foundation for
the entire global monetary system. Also the
ruinous headwinds harm the system seen in the
perma-bear market in housing, once thought the
wondrous engine for the entire USEconomy. Gold
had a great decade in the 2000 years. It will
continue since the main cylinder is stronger.
But the paper gold market must be destroyed
first, a process well along, helped by the MFGlobal
thefts and the High Frequency Trading dominance.
The corruption of Wall Street has become almost
a mainstream topic. The fraud accusations and
flimsy defenses are daily, alongside the constant
backdrop of court settlements for fraud in the
housing mortgage finance sector. The only safe
money anymore is Gold & Silver bars, surely
not bonds piled in any kind of assortment. The
best indicator that signals the gold bull market
remains on course is negative real interest
rates. The real interest rate is simply the
nominal interest rate minus the prevailing pr
ice inflation.

The chart below calculates the real interest
rate by extracting annualized inflation from
the 10-year USTreasury nominal rate. But it
relies upon the amusement based CPI proffered
by the stat-rat agents of deception at the USGovt
agencies. They depend heavily upon hedonic value
adjustments to claim prices are not rising,
when almost all components within their calculation
exceed the overall weighted sum result that
is reported as the CPI-U. The adjustments have
become laughable and the object of common criticism,
if not scorn. So the negative real rate indicator
is effectively foretelling of a continued gold
bull market, even before reality infusions.
The accurate indicator is actually 6% to 7%
more negative! The true CPI is 6% to 7% higher
than the official dumkopf CPI issued by the
USGovt. Gray highlighted areas are the periods
when the real interest rate was below zero,
when gold has performed well. Gold climbs when
real interest rates are low or falling. Notice
how the gold bull market took off in 2003 and
2004 and 2005, when the officially calculated
real rate was listed as plus 1% to 3%. The group
of Western central bankers actually make the
real rate of interest more powerfully negative
every single year. As long as the USFed and
Euro Central Bank and Bank of England and Swiss
National Bank maintain near 0% rates, they will
keep price inflation strong. As long as the
USFed continues to promise 0% for as far as
the eye can see, the real rate will be big bold
and negative. The gold bull indicator will
remain flashing strong signals of powerful movement
for a few more years at least, especially since
all their vacant solutions involve the debasement
of money and the increase of budget deficits.
Thanks to the Casey gang for a fine chart.

Analysts like Jeff Clark lose some credibility
by using the official nonsensical CPI. But his
reasoning is sound. He concluded, "The
reason for this phenomenon is straightforward.
When real interest rates are at or below zero,
cash or debt instruments (like bonds) cease
being effective because the return is lower
than inflation. In these cases, the investment
is actually losing purchasing power, regardless
of what the investment pays. An investor's interest
thus shifts to assets that offer returns above
inflation, or at least a vehicle where money
does not lose value. Gold is one of the most
reliable and proven tools in this scenario.
Politicians in the US, EU, and a range of other countries are keeping
interest rates low, which in spite of a low
CPI, pushes real rates below zero. This makes
cash and USTreasurys guaranteed losers right
now. Not only are investors maintaining purchasing
power with gold, they are outpacing most interest
bearing investments due to the rising price
of the metal." One can safely conclude
that the gold price has risen three times faster
than the prevailing price inflation rate. Gold
is doing far better than keeping pace with purchase
power of money itself, because it is slowly
removing the longstanding suppression mainstay
cord lines.Clark loses further credibility by permitting advertisements of the
corrupted SPDR Trust gold exchange traded fund.
It is a tool used by the Wall Street and gold
cartel to keep down the gold price. They used
shorted shares to deplete the gold held in inventory,
with frequent raids. The GLD fund is not a gold
investment at all. See the Seeking Alpha article
(CLICK HERE).

◄$$$ USFED SWAP BAILOUT OF EUROPE
IS YET ANOTHER HIGHLY DISTURBING EVENT. NO POPULAR
APPROVAL OCCURRED. THE RISKS ARE SHARED FOR
SYSTEMIC FAILURE AND BANK SYSTEM COLLAPSE. THE
MONETARY SYSTEM IS IN THE PROCESS OF COLLAPSE
BEFORE OUR EYES. THE USFED AND EUROCB ARE BECOMING
GIGANTIC TOXIC PAPER MILLS AND VAULTS. BY PREVENTING
THE EUROPEAN UNION FROM DISSOLVING, AND PREVENTING THE MEMBER NATIONS FROM REVERTING
TO THEIR DOMESTIC CURRENCIES, THE TWO CENTRAL
BANKS ARE DEBASING THE USDOLLAR. THUS THE ENTIRE
GLOBAL ECONOMY COST STRUCTURE IS RISING. THE
GLOBAL ECONOMY IS DRAGGED DOWN BY A RECESSION
EXTENDING FROM THE WEST. $$$

On March 26th, a meeting convened of the Domestic
Monetary Policy & Technology Subcommittee
of the House Committee on Financial Services.
The topic was the USFed aid to the EuroZone
and the impact on the United
States and the USDollar.
Chairman Bernanke was not at the meeting, a
busy man. The USFed was represented by William
Dudley of the New York Fed and Steven Kamin,
a USFed board director. The hearing dealt mainly
with the USFed currency swap with the Euro Central
Bank, a covert bailout of European banks. Last
year, the European banks had been pressured
by their governments to buy their own sovereign
bonds. In the wake of the crisis that ensued,
European banks had difficulty renewing their
short-term US$-based loans. As the ECB can only
print Euros, not USDollars, European banks were
in a bad bind. The big US banks did lend to European
banks, but they reached a limit. In September
2011, the USFed stepped in and bailed out European
banks through currency swaps. Through the
swap device, the USFed assumed its role as the
international lender of last resort. Do not
be fooled by idle empty talk about the USGovt
no longer funding the IMF for the purpose of
bailing out European banks. This is the public
face. The hidden face is the multi-$trillion
Dollar Swap Facility usage, the primary critical
lifeline to Europe. It
has prevented a systemic collapse in full stark
view. Draghi at the EuroCB has tapped the facility
for a cool $3.1 trillion in the last six months
for big bank rescues, which conceal the sovereign
bond prop bailouts. See the Zero Hedge article
(CLICK HERE).

During the financial crisis between 2007 and
2009, the USFed had bailed out European banks
but through the back door. They used direct
loans to bank subsidiaries located in the United States. In order to conceal the newest
bailouts, the USFed deploys the gigantic
currency swaps, using attractive discounted
rates. The USFed claims it is easy money, when
in fact the loans turn toxic rapidly. The
EuroCB uses the money to lend to desperate European
banks whose failure has been imminent, burdened
by sovereign debt once thought secure. The entire
system is collapsing. The hearing was to discuss
the hidden bailout of European banks by the
USFed. To the surprise of Congressional members,
the bankers claimed that the bailout was basically
a free lunch for US taxpayers, as interest would
be earned. They maintained that the bailout
was necessary to avoid a default of European
banks, and all that stress in financial markets.
The contagion would reach the United
States with action taken,
as its banks would be damaged through the interconnectivity.
The USFed promised to end the swap activity
when the costs and risks rose too much. They
already have. They just lie since the central
banks collectively are desperate. The systemic
is breaking down. See the Philipp Bagus article
entitled "The Fed's Swap Bailout Of
The Eurozone" from the Von Mises Institute
(CLICK HERE).

The rebuttal to clownish pollyanna nonsense
is easy to formulate and list. Consider:

The USFed lent to the European banks indirectly
even though the big US banks refused. The
risk was too high. The counter-party risk
is the real issue. The Euro banks could go
bust, and the EuroCB balance sheet could suffer
toxicity trauma, its balance sheet the most
highly leveraged in the world. Truth told,
the ECB is grotesquely insolvent. The ECB
holds all types of wrecked sovereign bonds
from Southern Europe,
much accepted a while back before significant
bond principal loss. The support ultimately
comes from the printing press, thus the argument
to own Gold as major currencies rot from lying
in debasement with oily bond rags.

A vicious circle exists. The USFed hopes
the EuroCB is recapitalized by the EuroZone
governments, but they turn to the ECB, which
turns to the USFed. The USFed acts as though
it is not the lending of last resort. The
recapitalization initiative will be done on
the back of the USFed Dollar Swap Facility
(chapter 86) in order to repay the USFed its
own loan. Reminds a person of using a credit
card cash extension to pay off another credit
card balance, except carried by the same owner.

The USFed is a bad investor, operating like
an business bank with inverted rules for profit.
They purchase securities that nobody wants,
that lose value, and thus make their balance
sheet toxic. The USFed and EuroCB together
are ruined insolvent broken banks without
regulatory oversight. The USFed never makes
good investments like Apple stock, or Dakota
energy deposits, or Iowa
farmland, or Canadian water, or even GOLD.
The USFed and EuroCB are gigantic cousins
to Fannie Mae for the abuse of government
debt gone toxic. Fannie is their deformed
legless child.

The moral hazard has gone nuclear and is
raging globally. The financial markets rely
on the central banks to purchase toxic bonds
and to flood the banking system with cash
that finds its way to the stocks and bonds
of all stripes. The motive for prudence is
nowhere. That is why the subprime loans are
making a comeback. The hazard is acute. The
political extension is a trade-off of more
hazard for more centralized rule. The greatest
risk might be liberty in Europe.
It has already vanished in the United
States from executive
decrees.

The USFed is essentially bailing out the
most insolvent elements of Europe, and in doing so, it debases the USDollar. In fact, they
are lifting the cost structure for the entire
global economy, since most commodities are
priced in US$ terms. The USFed is preventing
capitalism from working, a process that could
come from big bank liquidation, even sovereign
bond liquidation tied to broken governments
in a failed European Union experiment. The
USFed is preserving the broken European Union.
The continent of Europe
has never been successfully united, and never
will without pure evil fascist rule.

For more light reading, check out "Astounding
Facts About Fed Treasury Purchases"
by Chuck Butler (CLICK HERE).
History is being made, but of total systemic
ruin.

◄$$$ ANOTHER DEBT DOWNGRADE FOR THE USGOVT,
THIS FROM AN INDEPENDENT AGENCY. THE FACTOR
OF GROWING DEBT WITHOUT A GROWING USECONOMY
IS COMING TO THE FORE. THE UNITED STATES RESEMBLES
THE P.I.G.S. NATIONS OF SOUTHERN
EUROPE. THE USGOVT DEBT CAN NEVER BE REPAID,
A REALIZATION TO BE MADE FIRM IN THE NEXT YEAR
OR TWO YEARS. $$$

Egan-Jones is the most independent rating agency
in the United States. The background
has been seen before. The USGovt debt limit
is near another breach, but this time few care.
The progression of US debt/GDP ratio surpassing
the 100% mark is nigh. The Standard &
Poors rate analysts warned in February that
their agency plans to downgrade the USGovt again
within six months if there was no budget plan.
No budget plan is in the works. No break from
the deadlock is visible. Plans are presented
in polarized fashion. The USGovt is on the verge
of having its debt ceiling fiasco repeat all
over again by September. Then came the debt
downgrade by Standard & Poors that caused
a splash. Egan Jones is a small but respectable
debt rating agency, among few that are not tainted
by politics and Wall Street pressure. Egan
Jones downgraded the United States Govt from
AA+ to AA, with a negative outlook further.
The data reads like the US being the biggest pig among the PIGS.

The official statement issued by Egan Jones
made some glaring arguments with startling data
to back it up. Their focus was on debt and the
power to repay from economic vitality that is
lacking. The USCongress embarked and failed
on a path to reduce the deficit by a small token,
failing on stage in full global view. Egan Jones
wrote, "Inflection point: when debt
to GDP exceeds 100%, a country's financial flexibility
becomes increasingly strained. For the first
time since WWII,
US debt exceeds 100%. From 2008 to 2010, debt
rose a total of 23.6% while GDP rose a total
of 1.6%. Unfortunately, with an annual federal
budget deficit in the area of $1.4 trillion,
debt is likely to reach $16.7 trillion as of
the end of 2012. While assuming GDP grows 2.5%,
total GDP is likely to reach $15.7T. Therefore,
as of the end of 2012, the debt to GDP ratio
is likely to be in the area of 106%. Assuming
the federal deficit for 2013 remains at $1.4T
and GDP growth is 2.5%, the total debt will
rise to $18.1T and GDP will rise to $16.1T,
resulting in debt to GDP of 112%. In comparison,
France's
and Italy's
debt to GDP are 81% and 117% respectively.
Regarding efforts to address budget problems,
the Super Committee was seeking spending cuts
of $1.5 trillion over 10 years or merely $150
billion per year, and was a failure. Obviously,
the current course is not enhancing credit quality.
Without some structural changes soon, restoring
credit quality will become increasingly difficult.
Yields on 10-year Treasury Notes have fallen
to their lowest since early February 2010 with
US Federal Reserve's aggressive purchases of
USTreasurys. A concern is the rise in interest
rates placing higher pressure on the US's credit quality. Excess
growth of money supply (debt monetization) harms
creditors and ultimately the economy. Weak debt
reduction efforts force a negative watch."
See the Zero Hedge article (CLICK HERE).
Someday a debt rating agency will dispute the
GDP officially stated, and bring attention to
the chronic recession and negative GDP growth.

One must wonder if Egan Jones ever heard of
Interest Rate Swaps. These highly leveraged
contracts have kept the long-term USTBond yield
down in the 2% zone for over a year, despite
gargantuan debt issuance. Rules of Supply
& Demand no longer apply, since supply is
out of control and demand is from the USFed
itself. USGovt deficits are skyrocketing
but the Printing Press purchases a majority
of the debt. Then again, the IRSwap is a taboo
topic since a weapon of mass destruction that
the US Dept Treasury uses, against itself. Lastly,
Egan Jones uses the corrupt GDP growth data.
The USEconomy has been stuck in a minus 3% to
minus 5% recession since 2009. Time to wake
up to the fact that debt grows by $1.5 trillion
annually during a chronic recession with little
hope of exit! Thus the Jackass forecast of a
USGovt debt default in the future.

## BROKEN
BANK WALLS

◄$$$ GLASS STEAGAL WALLS ARE QUIETLY
BEING REBUILT AFTER THE DAMAGE IS DONE, AND
THE ENTIRE US-BASED FINANCIAL STRUCTURE HAS
SUCCUMBED TO GROTESQUE INSOLVENCY AND RUIN.
THE PROTECTIVE WALLS BETWEEN COMMERCIAL BANKS,
STOCK BROKERAGE, AND INSURANCE WERE REMOVED
BY RUBIN IN THE LATE 1990 DECADE, WITH NO VISIBLE
BENEFIT. LOOK FOR SOME BIG BANK RESTRUCTURING
SOON. $$$

This is the barn door being locked after the
horses escaped, but worse, the barn has burned
down with only a shell remaining. It is my firm
conviction that systemic ruin was the designed
plan by the nazis and syndicate titans, whose
boy Greenspan was willing to lead the way. Formally,
the Clinton Admin signed into law in 1999 the
legislation known as the Gramm Leach Bliley
Act, removing the three-part barriers. They
accomplished their mission. After the ruin,
the walls are being rebuilt quietly. A return
of the 1933 Glass-Steagall Act has been called
for during the last few years. According to
those sitting on the Securities Traders Assn
of New York, the landmark law whose roots trace
back to the Great Depression is effectively
back on the books. Some sentiment swirls among
investment banks that the reform movement has
further legs. The firm Keefe, Bruyette &
Woods has recently argued that big bank breakups
might occur in the near future. See the Yahoo
Finance article (CLICK HERE).
If so, then expect the most vile and largest
to be exempt, like JPMorgan Chase and Bank of
America and Citigroup. They have special functions,
JPM being the USFed operating agent, BOA being
the chief narcotics money laundering channel,
and Citigroup being the CIA project and spook
pension auto teller machine. Furthermore, big
bank breakup does not mean liquidation. Any
restructuring would preserve the insidious illicit
functions in smaller business units that would
actually be easier to manage, made more free
from mundane functions. The very banks that
control the USGovt and US security agencies are not going to order their
own liquidation and dissolution.

◄$$$ JPMORGAN EARNINGS WERE PROPELLED
BY RAIDS ON THE LOAN LOSS RESERVE FUND, A FAMILIAR
COMMON THEME AMONG THE BIG BROKEN US-BANKS.
THE JPMORGAN NON-PERFORMING LOANS IN THEIR PORTFOLIO
GREW, WHICH SHOULD HAVE JUSTIFIED AN INCREASE
IN LOSS RESERVES. THE NEW CONSTANT WILL BE THE
FUNDS SET ASIDE FOR LITIGATION AND LAWSUIT SETTLEMENT.
TO BE SURE, JPMORGAN MISSED BADLY IN EARNINGS,
AS THE GREAT SLIDE INTO THE ABYSS HAS BEGUN
TO GATHER MOMENTUM. TOO MANY WARNING SIGNALS
ARE FLASHING FOR JPMORGUE, UNLIKE IN THE PAST.
DIMON LOOKS SCARED. $$$

Two weeks ago, the goliath syndicate titan
JPMorgan announced earnings results. They were
called better than expected, but only with the
benefit of a poorly directed raid on loss reserves.
In no way was an increase in its dividend to
30 cents per share justified either. In no way
was a $15 billion stock buyback warranted either,
given that business growth and earnings are
absent. Business is on the decline in numerous
respects. The key feature was the reduction
in Loan Loss Reserves, the most common abuse
in recent quarters for the big broken banks
to pump up the bottom line. Raids to loan loss
reserves accounted for $1.8 billion of supposed
profit, equal to 28 cents per share. The
firm's ugly blotch was Non-Performing Loans,
which increased for the first time in several
years, since before the eruption of the subprime
crisis in 2007. The NPF loans rose from $10.0
billion to $10.6 billion. The list of one-time
items is lengthly. The Washington Mutual bankruptcy
settlement cost JPM a ripe $1.1 billion on the
quarter, to settle the corrupt abuses, mere
costs, no felonies, and certainly prison time
for the WaMu gangsters. Curiously the infamous
Credit Value Adjustment game went into reverse,
costing an accounting loss, as the debt and
its insurance tightened in the quarter. A substantial
$2.5 billion expense was logged for additional
litigation reserves, as every conceivable bank
is suing JPM. Expect more legal expenses and
settlement costs in future quarters.

The quarterly results would have been truly
lousy and the talk of the market without the
one-time abuses. Virtually all investment bank
revenue items declined year over year. Basic
IB fees fell by 23%, year over year. Equity
revenue (stock trading) was down 4% yoy. Fixed
income (bond trading) revenue was down 2% yoy.
The quarter was between horrendous and wretched.
Check out the miserable trend of abuse. NPF
loans have been relatively tame for four quarters,
yet the raids to Loan Loss Reserves have been
amplified and vigorous, if not desperate. CEO
Jamie Dimon has over the past two years alone
generated $12.3 billion in puffy accounting
earnings thru the LLR raids! These reserves
have been drawn down by $3.9 billion from a
year ago, to the pleasure of their dumb investors.
Far more troubling on the chart below is an
increase in non-performing loans (green segment)
to $10.6 billion for the first time in years.
Bear in mind that many bank analysts believe
the actual reserves exist, to cover losses.
But they reside at the USFed, called excess
reserves, earning next to nothing. My view is
that the excess reserves conceal the insolvency
of the USFed itself.

Jim Sinclair reiterated the Jackass arguments
in pointed fashion. He wrote, "All the
media fell in love with the JPM reported bottom
line. The expected number was $1.17 per share,
and they reported $1.31. However, if you strip
out the 28 cents they recorded by reducing their
Loan Loss Reserve, they actually did $1.03,
and missed bigtime. This is not a valid decreasing
of their loan loss reserve for three reasons.
A) Because we know the housing market is plunging
again and JPM will soon have to write down a
lot more mortgage debt. B) Their non-performing
loan disclosure showed that their non-performing
loans increased by $600 million to $10.6 billion.
C) We know the economy is tanking again, so
JPM will likely suffer big loan write-downs
across all of its lending lines."

The entire proprietary trading whale story,
and the reorganization to elude the restrictions
from the Volcker Rule, have also made the financial
news rounds. The Iksil Whale and the oddball
superstar named Achilles have made headlines.
These proprietary traders place multi-$billion
bets that cannot be justified as mere hedges
against other positions to ensure stability.
The client hedge argument is bogus to the core.
Never do large firms hedge against every segregated
client account position. Stock brokerage does
not hedge against client accounts. Utter nonsense!
Instead, JPMorgan is entrusted with the substantial
and burdensome responsibility to act as principal
financial pillar to hedge against collapse of
the entire Western financial system, from bonds
to currencys to gold. When it involves Gold
or USTBonds, the leverage and abuse are illicit
and to the extreme. The derivatives pile on
with naked short positions for Gold, keeping
down the metal price, while central banks apply
$5 trillion in whisky money to the big banks.
The Interest Rate Swaps pile on to maintain
the artificial 2% long bond yield, while the
USGovt racks up $1.5 trillion in new annual
debt. Sinclair added comments on the proprietary
organizational chart. Gold should be much higher
in price, and long-term USTBond yields should
be much higher as well, just like in Southern
Europe, which the United
States resembles more with
each passing month. The US
belongs in the PIGS pen with the rest of the
swine.

Comments about the Volcker Rule adaptation
came. Sinclair wrote, "JPM has simply
moved its proprietary (the in-house hedge fund,
aka prop trading) functions into the office
of the Chief Information Officer. This maneuver
was done in order to move the risk-based capital
trading out of the securities unit and into
the bank holding unit. Why? Two-fold: 1) It
removes the proprietary trading away from the
eyeballs of the securities regulators and the
Volker Rule. And 2) it shifts this risky trading
into a business unit that would be covered by
the FDIC. It is what Bank of America
did when moved something like $52 trillion in
gross derivative positions from its Merrill
Lynch securities unit to its holding company.
I would bet both of my testicles that the CIO
proprietary positions include a heavy does of
gold and silver COMEX short positions."
JimS is a betting man, and almost always wins
his bets. Notice how $1650 is a strong firm
robust base of support for the Gold price, after
that target was declared by Sinclair back in
2005 and 2006 and 2007.

My gut feeling is that JPMorgue is about to
take severe wounds. Note the many curious events.
The shifty behavior to avoid regulatory scrutiny
over the Volcker Rule. The Blythe Masters absurdities
uttered about the precious metals short position
being a hedge against client accounts. The accounting
abuses to show a quarterly profit. The endless
litigation and bond investor lawsuits. The Non-Performing
Loans rising amidst the renewed housing market
decline. The USEconomic endless recession. This
lady Masters truly deals in Pulp Fiction, quite
the accomplished liar. A pretty good lookalike
for Uma Thurman. This Blythe is no lady.

◄$$$ MORGAN STANLEY'S FAILURE TO SEGREGATE
CLIENT ASSETS ON A NEW PRECIOUS METAL VAULT
INVESTMENT SCHEME CREATES DEFAULT RISK. YET
ANOTHER CONJOB BY WALL
STREET PERPETRATED AGAINST CLUELESS INVESTORS
WHO DO NOT COMPREHEND ALLOCATED ACCOUNT REQUIREMENTS.
IF MORGAN STANLEY
FAILS AS A FIRM, ALL CLIENTS WILL LOSE THEIR
INVESTMENT IN PLEDGED COLLATERAL TO COUNTER-PARTIES
IN HIDDEN DERIVATIVE TRADES. ANOTHER IN A STRING
OF MFGLOBAL CASES IS BEING ARRANGED. THE WALL
STREET CRIMINAL ACTIVITY IS GOING WITHOUT LEGAL
OBSTACLE OR PROSECUTION, ON A PERMITTED SERIAL
CRIME SPREE. $$$

In a legal warehouse facility arrangement with
clients, such as with precious metals, the hard
fast rule is of bailment. Client property must
be segregated so that it is capable of being
identified specifically as belonging to the
client. It must be identifiable for every exact
coin, bar, and piece of jewelry or art, preferably
with serial numbers or certification tags. It
is a good customary practice for the warehouse
manager to list the weight, manufacturer, bar
number, purity fineness, and specified location
inside the warehouse. The investment interest
among the public has led to new problems. Brokerage
houses like Morgan Stanley cannot resist the
temptation of big profits levied like taxes
on the naive public. The corrupt firm is offering
to sell gold, silver, and platinum bars, and
to keep them in a storage facility. But
they refuse to segregate client assets, and
worse, they falsely claim Allocated account
ownership. Instead, MS intermingles their own
firm's bullion metal, and probably uses client
metal as collateral in its shady derivative
trades. The unsuspecting naive customers are
lined up to be cheated and scammed. They will
not be purchasing metal in allocated storage.
Instead, they will be purchasing the equivalent
of an unsecured bond with repayment promised
in the form of gold, silver, or platinum. What
MS has designed is a fractional banking scheme
involving precious metals, perfectly arranged
for future fraud. In investment material
offered to potential clients, MS actually uses
the term allocated ownership when
it is not allocated at all. It is a mere deception
designed to lure well-read, cautious, but inexperienced
precious metals buyers.

The Morgan Stanley offering is NOT allocated
storage, as defined under any industry standard,
practice, or relevant law. Yet, its website
states, "Allocated ownership means that
the physical precious metals (bars and coins)
you order from Morgan Stanley Smith Barney's
Precious Metals Trading Desk are purchased and
stored on your behalf, but no specific metal
bar or coin is specifically identified as belonging
to you. Your precious metals will be stored
together with precious metals that are owned
by and stored for other customers. Storage
costs are generally higher for allocated metal
than for unallocated metal." What grand
deception! This is obvious unallocated ownership
with the false name and higher price. The invested
metal is held in book-entry form in your Morgan
Stanley Smith Barney account and is backed by
physical metal stored in either the United
States or London. Investors are simply being tricked into
becoming new sources of precious metal for abuse,
even funding for company operations. Wores,
the metal involved probably already has a few
claims against it.

The scheme appears well designed to allow pledging
of such metal as collateral for derivatives
trades. Furthermore, if Morgan Stanley ever
fails as a financial firm, in all likelihood
all vault metals will go directly to counter-parties
from the derivative contracts attached.
Customers who deposit money are merely unsecured
creditors under the scheme. They are not actual
bullion metal owners. They hold an unsecured
promise to repay in unspecified abstract metal,
last in line during problem times, but have
no claim on particular bars of gold, silver,
or platinum. This is a pure fraud scheme designed
to exploit the precious metals enthusiasm and
ignorance of legitimate vault business. See
the Seeking Alpha article (CLICK HERE).

◄$$$ TURKEY HAS RESPONDED TO FOREIGN CAPITAL FLIGHT
AND BANK RAIDS BY ADDING TO GOLD RESERVES. SEVERAL
CENTRAL BANK POLICY REVISIONS HAVE BEEN PUT
IN PLACE AS PROTECTION. IN RECENT MONTHS, FOREIGN
CLAIMS ON TURKISH BANKS HAVE BEEN RISING, WHILE
THE ABILITY OF THE BANKS TO MEET THE CLAIMS
HAS BEEN FALLING. GOLD IS A PRINCIPAL DEFENSE
MECHANISM TO FORTIFY THE WALLS. $$$

In March, the Turkish central bank sharply
raised the domestic currency reserves banks
can hold as gold bullion, while at the same
time cutting the proportion for foreign exchange
reserves to zero. The Turkish banks have received
approval to hold some of their reserves as gold.
The Turkish people have been encouraged to deposit
more gold with the national banking system.
Like India
and Vietnam,
Turkey satisfies most of its
gold investment demand through imports. They
employ gold as a means of addressing a balance
of payments challenge. However, more to the
story. Turkey's
fragile banking system faces a liquidity crisis.
The move to boost gold within the banking system
could be part of a wider strategy to stave off
a liquidity crisis. Banks are challenged
to hold insufficient liquid reserves to meet
their creditor demands for repayment. Turkey has repeated episodes of inflation and
deficit problems every few years, the last occurrence
being in 2000-2001. In the past three years,
my gold trader source has mentioned Turkey often in gold transactions,
a hotbed that never reaches the news. They have
been avid sellers of their treasury gold bullion
to meet shortfalls.

The Eastern European nation, gateway to Asia, has attempted to avoid the IMF by focusing upon three pillars
of fiscal adjustment, structural reform, and
a firm exchange rate commitment supported by
consistent incomes policies. They have kicked
the can down the road like many major nations.
The Current Account deficit (trade gap plus
investment gap) expanded from $0.9 billion in
1999 to nearly $10 billion by the end of 2000,
which has led to built-up foreign currency liabilities.
Foreign investors have taken advantage of higher
rates, much like they have in Brazil. Capital inflow
had already begun to slow down in the second
half of 2000, and by September had turned into
a net outflow, a critical reverse that has endure.
For years the central bank might have been able
to sterilize the outflows by expanding the money
supply, but they chose not to undermine the
Lira currency. With inadequate market liquidity,
interest rates rose. Banks with short-term borrowed
funds were largely forced out of the trade with
margin calls. Rising interest rates made more
costly the government debt service, which led
to decline in government bond prices. Then money
started to flow out of Turkey again. This all happened back in late 2000.
The IMF had to step in with a $7.5 billion loan.
Tough terms of the IMF loan, whereby it was
forbidden to use the money to support the Lira
while lowering interest rates, resulted in a
second liquidity crisis in February 2001. Their
stabilization program collapse. Turkey entered a deep recession, GDP that year
falling by over 5%. IMF loans never aid a nation,
always a poison pill. Other external factors
like a stubborn rise in oil prices put upward
pressure on inflation, which aggravated the
current account problem. The USDollar rise against
the Euro all through the 2000 decade created
a big problem for Turkey, whose imports are
priced in US$ terms while its export income
arrived in Euro terms.

Against this historical background, the central
bank issued a November Financial Stability Report
in summary. The banking system was judged to
be reasonably strong, but concerns had grown
concerning adequate liquidity. They cited rising
FX assets and rising FX liabilities on the bank
balance sheets. The foreign currency value of
assets compared to value of liabilities of a
similar maturity term has been falling. The
Foreign Currency Liquidity Adequacy Ratio has
been falling. In other words, foreigners have
been building up claims on Turkey's
banks, while the ability of banks to meet those
claims has been diminishing. This situation
is similar in Spain
and Italy,
which draw on EuroCB swap line funds to meet
the US$ obligations. Domestic assets in Turkey
could not be tolerated to fall too much, or
else bank solvency could be called into question.
Even if banks remained technically solvent,
they could still face a liquidity crunch if
too many of their creditors demanded return
of their money at the same time.

Last year, as the EuroZone crisis intensified,
Turkish officials responded to a threat of potential
migration of foreign funds and of foreign lenders
to pull out of the country as they ran into
trouble themselves. The likelihood also lurked
of rising rates required by foreign lenders,
to match the higher risk sustained. The Turkish
authorities undertook a number of measures in
response intended to boosting banking sector
liquidity. Last August, the central bank
Monetary Policy Committee cut its benchmark
policy interest rate from 6.25% to 5.75%, and
at the same time reduced the Turkish Lira reserve
ratios requirements. They also provided central
bank foreign exchange liquidity to manage currency
swing volatility. Banks were permitted to hold
up to 10% of their Turkish Lira reserves as
USDollars or Euros. The permitted ratio was
raised to 20% and then 40% in October. Since
that time, banks have been permitted to hold
up to 10% of their reserves in the form of gold
bullion. In March last month, this measure
was adapted further, to where banks were allowed
to hold up to 20% of Turkish Lira reserves as
gold, while forbidden to hold gold towards their
foreign currency liabilities.

The strategy has been to ensure Turkey's banks have sufficiently
liquid reserves to meet their liabilities, especially
their foreign currency liabilities. Note the
fine tune modification to prevent gold being
substituted for USDollars and Euros. Similar
to events in 2000, the central bank is in a
predicament. If it deploys its reserves to provide
foreign exchange liquidity, it risks a speculative
attack on a currency from the back door like
last year, when it lost 16% in value against
the USDollar. That bred price inflation on the
cost side. Conversely, if it is too aggressive
in providing domestic currency liquidity, it
will undermine the Lira from the floor. Turkey
has possibly encountered the limits of accommodative
monetary policy. Remarkably, its central
bank has turned to gold bullion as a protection,
a sort of potential lifeboat. Clearly the Turkish
banks are being encouraged to treat gold as
a quasi-foreign currency, but whose depositors
are domestic citizens less inclined to pull
their money at the first signs of trouble.

Turkish banks have offered gold accounts since
the mid-1990s. However, to avoid an excessive
lift in spirits, most of the gold is in private
hands. An estimated 5000 tonnes (valued at US$260
billion) is still held in physical form outside
the banking system. They wish for more gold
ownership by the people. Questions linger as
to whether the public has the savings, trusts
the banks, and continues the trend. The challenge
for officials is to ensure the safety of such
gold deposits. The nation of Turkey is using gold to fortify
its bank walls and border gates during an external
threat. The opposite is happening in the
United States, which bans gold, attacks its price,
and attempts to confiscate foreign gold accounts.
Turkey has much higher chances
of surviving the financial storms that seem
interminable. See the Resource Investor article
by Ben Traynor of Gold news (CLICK HERE).